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Financial flexibility and corporate financing efficiency

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  • Li, Ziwei
  • Hyung, Dae Eun
  • Lee, Dong Young

Abstract

The importance of financial flexibility has long been recognized in corporate finance literature; however, its impact on financing efficiency remains underexplored. Although previous studies have examined the determinants and results of financial flexibility separately, the mechanisms by which it influences firm performance, particularly financing efficiency, remain unknown. This disparity is significant in light of the increasing importance of efficient resource allocation in today's dynamic business environment. We investigate the relationship between financial flexibility and corporate financing efficiency using a comprehensive dataset of Chinese listed companies from 2010 to 2022. Employing a multimethod approach that includes panel data analysis, propensity score matching, and Heckman correction, we found that financial flexibility significantly improves financing efficiency. This relationship is partially mediated by corporate risk-taking and moderated by the CEO's financial background. Our findings show that the impact of financial flexibility varies by firm ownership type and industry, with stronger effects observed in state-owned enterprises and nonmanufacturing enterprises. These findings contribute to a deeper understanding of financial flexibility's role in corporate finance, with implications for financial management strategies and emphasis on the importance of considering both firm-specific and contextual factors when leveraging financial flexibility for improved financing efficiency.

Suggested Citation

  • Li, Ziwei & Hyung, Dae Eun & Lee, Dong Young, 2025. "Financial flexibility and corporate financing efficiency," International Review of Financial Analysis, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:finana:v:98:y:2025:i:c:s105752192400824x
    DOI: 10.1016/j.irfa.2024.103892
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    1. Jianzhi Wei & Xuesong He & Yawei Wu, 2025. "ESG Performance Empowers Financial Flexibility in Manufacturing Firms—Empirical Evidence from China," Sustainability, MDPI, vol. 17(3), pages 1-21, January.

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    More about this item

    Keywords

    Financial flexibility; Financing efficiency; Risk-taking; CEO characteristics; Corporate finance;
    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
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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