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Industry tournament incentives and the speed of leverage adjustments: Evidence from China

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  • Miao, Senlin
  • Wen, Fenghua
  • Zhang, Yun

Abstract

This study investigates the effect of industry tournament incentives on the speed of leverage adjustments in China. Using a large sample of Chinese listed firms from 2007 to 2017, we find that industry tournament incentives increase the speed of leverage adjustments towards the target leverage. This effect is attenuated for firms with strong monitoring and for firms with CEOs who are near-retirement or brand new. Moreover, the positive association between industry tournament incentives and the speed of leverage adjustments towards the target level is less pronounced for state-owned enterprises compared to non-state-owned enterprises. Overall, our study indicates that industry tournament incentive is an important determinant of capital structure dynamics.

Suggested Citation

  • Miao, Senlin & Wen, Fenghua & Zhang, Yun, 2022. "Industry tournament incentives and the speed of leverage adjustments: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002836
    DOI: 10.1016/j.irfa.2022.102332
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    More about this item

    Keywords

    Industry tournament incentives; Capital structure dynamics; Agency issue; State-owned enterprises; China;
    All these keywords.

    JEL classification:

    • 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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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