Capital structure and corporate litigation

Zhi Li, Yue Liu and Wenxuan Huang

International Review of Economics & Finance, 2024, vol. 95, issue C

Abstract: This paper selects the data of A-share listed companies in Shanghai and Shenzhen from 2011 to 2022 as a sample to explore the relationship between capital structure and corporate litigation and finds that an unreasonable capital structure increases the litigation risk of enterprises. A reasonable capital structure not only helps enterprises maintain a sound financial position and efficient decision-making mechanism in litigation but also reduces their legal risks and improves their competitiveness; the role of capital structure on corporate litigation risk is more significant in regions with low rule of law than in areas with high rule of law. Firms may be more inclined to choose a robust capital structure to reduce litigation risk in areas with a strict legal environment and high investor protection. On the contrary, in regions with relatively lax legal environments and low levels of investor protection, firms may be more inclined to choose risky capital structures in pursuit of higher returns, but this also increases their exposure to litigation risk; financing constraints play a mediating role in the relationship between capital structure and corporate litigation.

Keywords: Capital structure; Litigation; Financing constraints (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:95:y:2024:i:c:s105905602400443x

DOI: 10.1016/j.iref.2024.103451

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