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Does the Deleveraging Policy Increase the Risk of Corporate Debt Default: Evidence from China

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  • Kejing Chen
  • Wenqi Guo
  • Yanling Kang
  • Jing Wang

Abstract

This article investigates whether a deleveraging policy influences the risk of corporate debt default. We provide evidence that the deleveraging policy can increase the risk of corporate debt default by reducing the supply of credit funds and increasing the cost of debt financing, and the conclusions remain robust after controlling for endogeneity problems. Furthermore, we find that the impact of the deleveraging policy on corporate debt default risk is more significant for enterprises with poor operating performance, nonstate-ownership, backward capacity, and developed shadow banking areas. Those findings provide a theoretical basis for the macrodecision transition from deleveraging to stabilizing leverage.

Suggested Citation

  • Kejing Chen & Wenqi Guo & Yanling Kang & Jing Wang, 2022. "Does the Deleveraging Policy Increase the Risk of Corporate Debt Default: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(3), pages 601-613, February.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:3:p:601-613
    DOI: 10.1080/1540496X.2020.1809376
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    Cited by:

    1. Chenxiang Zhang & Fengrui Zhang & Ningyan Chen & Huizhen Long, 2022. "RETRACTED ARTICLE: Application of artificial intelligence technology in financial data inspection and manufacturing bond default prediction in small and medium-sized enterprises (SMEs)," Operations Management Research, Springer, vol. 15(3), pages 941-952, December.
    2. Nie, Zi & Ling, Xuan & Chen, Meian, 2023. "The power of technology: FinTech and corporate debt default risk in China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

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