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Financing liabilities and inefficient investment of listed companies: Based on the adjustment effect of different financial structures

Yuanyue Wang, Zhaohui Yu and Xiaojing Yi

Australian Economic Papers, 2022, vol. 61, issue 4, 848-875

Abstract: For national development, the investment efficiency of listed companies should be improved. We take samples of non‐financial and non‐real estate listed companies to investigate the mechanism of financial liabilities on the inefficient investment behaviour of listed companies from a financial structure perspective. Results of our empirical research indicate an inverted U‐shaped relationship between financing liabilities and investment efficiency, and that financing liabilities inhibit underinvestment and exacerbate overinvestment. Operating liabilities were found to have a restraining effect on underinvestment. A bank‐led financial structure is more effective in regulating financing liabilities and alleviating overinvestment, while a market‐led financial structure is more conducive to regulating financing liabilities and, thus, curbs underinvestment. Therefore, a company's financial structure should be adjusted in a timely manner, according to demand, the scale of financial liabilities should be adjusted to reduce inefficient investment, and operational liabilities can be appropriately expanded. Additionally, attention should be focused on the role of administrative intervention and financial development to improve the investment efficiency of listed companies and eventually realise stable development of the national economy.

Date: 2022
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Handle: RePEc:bla:ausecp:v:61:y:2022:i:4:p:848-875