Local gambling attitudes and firms' financing strategies: New insights from the geographic structure in China

Degan Yu, Cong Wang, Guilong Cai and Haofan Qiang

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: This study examines the effect of local gambling attitudes on firms' financing strategies, using the number of lottery sales stations as a proxy for the strength of these attitudes. We find evidence suggesting that firms headquartered in cities with a stronger gambling attitude tend to have more leverage than firms headquartered elsewhere. Furthermore, the effect of local gambling attitudes on firms' leverage is more pronounced among firms that have higher agency costs or exist in a more opaque information environment. Finally, a strong local gambling attitude triggers local firms to overinvest, resulting in reduced overall efficiency and increased risks of bond defaults and stock price crashes. Our findings suggest that a strong local gambling attitude may encourage firms to adopt aggressive financing strategies and lower their resource allocation efficiency.

Keywords: Gambling attitude; Financing strategy; Leverage; Lottery; China (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001355

DOI: 10.1016/j.pacfin.2024.102384

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