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Cross-ownership and corporate leverage manipulation

Author

Listed:
  • Huang, Yisong
  • Wang, Yulong
  • Li, Piao
  • Li, Yaxin

Abstract

Cross-ownership plays a meaningful role in curbing corporate leverage manipulation, a practice that can conceal hidden debt and threaten capital market stability and national economic development. Using a sample of Chinese A-share nonfinancial listed firms, this study investigates the influence and mechanisms of cross-ownership on such manipulation. The results show that cross-ownership significantly reduces leverage manipulation, with a stronger inhibitory effect on “real debt in name only,” while its impact on off-balance-sheet liabilities remains insignificant. Cross-sectional evidence indicates that this restraining effect is more pronounced in firms operating under weaker regional financial regulation, lower corporate governance quality, and poorer accounting robustness. Mechanism tests further suggest that cross-ownership limits leverage manipulation by enhancing information disclosure quality, increasing analyst attention, and lowering the debt financing cost. In addition, economic consequence analysis reveals that curbing leverage manipulation through cross-ownership helps reduce business risk. These findings provide empirical support and policy guidance for the appropriate introduction of cross-ownership into Chinese enterprises.

Suggested Citation

  • Huang, Yisong & Wang, Yulong & Li, Piao & Li, Yaxin, 2026. "Cross-ownership and corporate leverage manipulation," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325024705
    DOI: 10.1016/j.frl.2025.109221
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