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Financial mismatch and corporate litigation risk

Author

Listed:
  • Zhang, Huaqing
  • Wang, Miao
  • Li, Zhi
  • Zhang, Hua

Abstract

This study investigates how financial mismatches impact corporate litigation risk among China's A-share listed companies from 2017 to 2022. A financial mismatch generally refers to a situation in which a company's financial resources are not optimally aligned with its investment needs, which can lead to inefficiencies and higher financing costs. Our study found that such mismatches increase the likelihood that companies will face legal disputes, which can escalate costs and damage reputations. Additionally, financial linkages—connections between companies and financial institutions—can mitigate these risks by reducing companies’ financing constraints, thereby lowering litigation risk. Using robust statistical methods, including ordinary least squares regression, robustness, and endogeneity tests, we confirm these findings, thus contributing to our collective understanding of the financial dynamics that influence corporate litigation risk and highlighting the importance of aligning financial strategies with corporate needs to minimize legal challenges and enhance stability.

Suggested Citation

  • Zhang, Huaqing & Wang, Miao & Li, Zhi & Zhang, Hua, 2024. "Financial mismatch and corporate litigation risk," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324008559
    DOI: 10.1016/j.frl.2024.105825
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    More about this item

    Keywords

    Financial mismatch; Corporate litigation risk; Financial linkage;
    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
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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