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Economic uncertainty and ‘short-term debt for long-term investment’ in energy firms: Evidence from China

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  • Gong, Min
  • Ou, Weimin
  • Zhang, Fan

Abstract

For a long time, Chinese enterprises have faced significant mismatches between their financing and investment strategies, the problem of “short-term debt for long-term investment” (SDFLI) being particularly prominent. This mismatch is a major contributor to the accumulation of financial risk. As the energy sector is at the forefront of the national economic supply chain, the issue of financing and investment mismatches in this industry warrants special attention. Meanwhile, in recent years, economic uncertainty has been on the rise. How does this heightened uncertainty impact the SDFLI practices of energy firms? This paper analyzes this issue using data from listed companies in China's energy sector. The results indicate that under the impact of uncertainty, the level of SDFLI in energy firms significantly increases. This outcome is a result of both the “forced choice” due to financing constraints and the “intentional action” driven by heightened short-term investment risks. Heterogeneity analysis reveals that the SDFLI phenomenon is more pronounced in regions with lower levels of financial development, weaker legal institutions, and less bank competition, as well as in energy firms with strong government ties, intense competition, and high growth. The findings of this paper contribute to understanding the causes of the SDFLI phenomenon in energy firms under economic uncertainty and aim to alert relevant authorities to the accumulation of financial risks in the energy sector amid the current uncertain economic environment.

Suggested Citation

  • Gong, Min & Ou, Weimin & Zhang, Fan, 2025. "Economic uncertainty and ‘short-term debt for long-term investment’ in energy firms: Evidence from China," Energy Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325000519
    DOI: 10.1016/j.eneco.2025.108228
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