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Political motives of excess leverage in state firms

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  • Talavera, Oleksandr
  • Yin, Shuxing
  • Zhang, Mao

Abstract

This study explores the political motives behind the enormous indebtedness of Chinese state firms. To measure the excess leverage of state firms, the difference between actual and predicted values, we balance the samples of private and state firms by matching and using the former sample to generate an out-of-sample prediction for the latter. Our results suggest that the excessive indebtedness of state firms positively relates to regional unemployment pressure and economic pressure faced by municipal politicians. These effects are more pronounced in local state firms and when local officials have stronger promotion incentives. Our paper provides evidence that government control leads to significant political influence over the real decisions of firms.

Suggested Citation

  • Talavera, Oleksandr & Yin, Shuxing & Zhang, Mao, 2024. "Political motives of excess leverage in state firms," International Review of Financial Analysis, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924000875
    DOI: 10.1016/j.irfa.2024.103155
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    More about this item

    Keywords

    Excess leverage; State firms; Political motives; Unemployment and economic pressure;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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