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Local optimistic expectations and corporate capital structure decisions

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  • Xie, Xinyan
  • Li, Junfeng
  • Wu, Kai

Abstract

This study investigates the influence of local optimistic expectations on corporate capital structure decisions. Leveraging a sample of Chinese A-share listed firms from 2010 to 2022, we document a robust positive association between regional optimism and corporate leverage ratios. This effect is particularly salient among firms that rely on short-term debt and operate in financially constrained regions. Instrumental variable regressions substantiate a causal interpretation of these findings. The results remain robust across a battery of sensitivity tests, including alternative variable definitions and sample restrictions. Mechanism analysis indicates that optimism shapes capital structure by driving investment expansion and amplifying the transmission of market sentiment. Collectively, our findings underscore the pivotal role of collective sentiment in shaping micro-level financial policies.

Suggested Citation

  • Xie, Xinyan & Li, Junfeng & Wu, Kai, 2026. "Local optimistic expectations and corporate capital structure decisions," Research in International Business and Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:riibaf:v:84:y:2026:i:c:s0275531926000267
    DOI: 10.1016/j.ribaf.2026.103299
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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