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Structural Deleveraging: Evidence from China

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  • Caoyuan Ma
  • Pin Guo
  • Zhao Zhang

Abstract

Using province‐level data in China for the period of 1999–2015, we examine the mechanisms through which sectoral differences in leverage ratio and productivity affect macro leverage ratios. The state‐owned sector undertakes a large number of public services and plays an irreplaceable role in solving market failures and providing public goods. However, in the case of information asymmetry and incentive incompatibility, these policy burdens affect the leverage optimization and productivity improvement of the state‐owned sector. From the perspective of sectoral differences, we therefore decompose the change in macro leverage ratio into leverage ratio structure effect and productivity structure effect, and then substantiate the impact mechanisms of these two effects on macro leverage ratios. Overall, our conclusions provide theoretical support and empirical evidence for structural deleveraging in China.

Suggested Citation

  • Caoyuan Ma & Pin Guo & Zhao Zhang, 2022. "Structural Deleveraging: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(6), pages 137-162, November.
    • Handle: RePEc:bla:chinae:v:30:y:2022:i:6:p:137-162
    DOI: 10.1111/cwe.12449
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    2. Qianbin Feng & Lexin Zhao & Mingxue Xu, 2023. "Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(4), pages 1-36, July.
    3. Xin Song & Xiaodi Liu & Huiyu Chen, 2024. "Driving force of value reversal in Chinese overleveraged firms: The mechanism and path of private placement," PLOS ONE, Public Library of Science, vol. 19(5), pages 1-19, May.

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