Institutional environment, credit risk expectations, and firms' investment strategies

Xiaohui Wei, Jian Li and Yuanhaocheng Li

Finance Research Letters, 2025, vol. 81, issue C

Abstract: Using data from Chinese A-share listed companies between 2011 and 2023, this study examines the impact of enhancing institutional environments on corporate investment plans. Findings reveal that enhancing the institutional environment can influence firms’ investment strategies, specifically enhancing firms' tangible investments while reducing financialization. Subsequent analysis reveals that a superior institutional framework can reduce credit spreads, improve credit risk perceptions, and shift firms from the real sector to the financial sector. This study offers policy recommendations for constructing an institutional environment that facilitates investment structure.

Keywords: Institutional environment optimization; Credit risk; Investment strategies (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006312

DOI: 10.1016/j.frl.2025.107371

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