Regional financial regulatory intensity and corporate capital misallocation

Huilian Fu, Jingyi Cai, Sinan Xia and Lianjie Zhou

International Review of Economics & Finance, 2025, vol. 100, issue C

Abstract: In the context of an increasingly complex global financial environment, this study systematically analyzes the impact of regional financial regulatory intensity on corporate capital misallocation using macro data from 31 provinces and cities in China and micro data from listed companies between 2010 and 2022. The research finds that an increase in regional financial regulatory intensity significantly reduces the degree of corporate capital misallocation, with notable differences observed between enterprises with different ownership structures and those audited by the Big Four accounting firms, revealing the profound impact of financial regulation on corporate capital allocation. Further analysis indicates that financial regulation effectively alleviates corporate financing constraints, thereby promoting a more optimal allocation of capital. Additionally, the level of regional economic development serves as an important moderating variable, significantly moderating the impact of regional financial regulatory intensity on corporate capital misallocation, with this moderating effect exhibiting significant heterogeneity across different regions, providing a new perspective for understanding the regional differences in the effects of financial regulation.

Keywords: Financial regulatory intensity; Corporate capital misallocation; Financing constraints (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002382

DOI: 10.1016/j.iref.2025.104075

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