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Financial Structure Reform and Enterprise Debt Risk Prevention

Bin Li, Geng Peng and Benfu Lv
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Bin Li: School of Economics and Management, University of Chinese Academy of Sciences Zhongguancun Road East 80, Haidian District, Beijing, China.
Geng Peng: School of Economics and Management, University of Chinese Academy of Sciences Zhongguancun Road East 80, Haidian District, Beijing, China.
Benfu Lv: School of Economics and Management, University of Chinese Academy of Sciences Zhongguancun Road East 80, Haidian District, Beijing, China.

Asian Economic and Financial Review, 2019, vol. 9, issue 4, 507-516

Abstract: Based on the financial structure database (FSD) and the global listed enterprises database (Osiris), this paper investigates the relationship between financial structural reform and corporate debt risk by using the two-way fixed effect model. Research results show that for every 1% increase in the degree of financial development, the corporate leverage ratio will decline by about 0.4%. We have studied the heterogeneity of the relationship. The empirical results show that for enterprises with weaker associations with the government, the improvement of financial development is more conducive to reducing the leverage ratio of enterprises. For countries with higher household savings rate, higher GDP growth rate or higher M2 growth rate, enhancing financial development to guard against corporate debt risk would be less effective. For countries with higher information disclosure requirement or stricter market supervision, promoting financial development can reduce corporate leverage ratio more effectively. To prevent the risk of corporate debt, the government needs to restructure the financial structure, improve the transparency of listed company information, strengthen market supervision and improve the level of financial marketization.

Keywords: Degree of financial development; Corporate leverage ratio; Heterogeneity; Financial structure; Market supervision; Financial marketization. (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 (search for similar items in EconPapers)
Date: 2019
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