IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0291350.html
   My bibliography  Save this article

Deleveraging and decapacity: A comparative analysis of corporate capital allocation based on asset reversibility

Author

Listed:
  • Songbo Jia
  • Chenying Sang
  • Shiwei Su
  • Jianxiang Xu

Abstract

China’s stimulus policies have caused overleveraging and overcapacity for the sustainable development of most industries (particularly high-pollution and energy-intensive industries). Thus, deleveraging and decapacity have become the two best options for the above industries to achieve long-term sustainable development. Based on China’s A-share listed companies from 2009 to 2019, this study investigated the effect of deleveraging and decapacity on corporate capital allocation using fixed effects, propensity score matching (PSM) and difference-in-differences (DID). A homogeneity analysis of geographical and firm characteristics was also conducted. The results show that: (1) Deleveraging and decapacity can significantly increase financial capital allocation by 3.67%, and decapacity can increase investment-related capital allocation by 0.63%. This indicates asset allocation optimization for sustainable development. (2) High asset reversibility can weaken the effect of deleveraging on financial capital allocation while strengthening the effect of decapacity on capital investment. (3) The impact of deleveraging and decapacity may vary among companies due to heterogeneous asset reversibility resulting from geographical locations and technological intensities. Given the current global energy crisis, optimizing capital allocation has become essential in addressing resource shortages and achieving long-term sustainable development. This study may provide a reference for alleviating corporate capital misallocation.

Suggested Citation

  • Songbo Jia & Chenying Sang & Shiwei Su & Jianxiang Xu, 2023. "Deleveraging and decapacity: A comparative analysis of corporate capital allocation based on asset reversibility," PLOS ONE, Public Library of Science, vol. 18(11), pages 1-31, November.
    • Handle: RePEc:plo:pone00:0291350
    DOI: 10.1371/journal.pone.0291350
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0291350
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0291350&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0291350?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kempf, Elisabeth & Luo, Mancy & Schäfer, Larissa & Tsoutsoura, Margarita, 2023. "Political ideology and international capital allocation," Journal of Financial Economics, Elsevier, vol. 148(2), pages 150-173.
    2. David Bulman & Maya Eden & Ha Nguyen, 2017. "Transitioning from low-income growth to high-income growth: is there a middle-income trap?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(1), pages 5-28, January.
    3. Xiaohua Song & Caiping Zhao & Jingjing Han & Qi Zhang & Jinpeng Liu & Yuanying Chi, 2020. "Measurement and Influencing Factors Research of the Energy and Power Efficiency in China: Based on the Supply-Side Structural Reform Perspective," Sustainability, MDPI, vol. 12(9), pages 1-23, May.
    4. Cantillo, Miguel & Wright, Julian, 2000. "How Do Firms Choose Their Lenders? An Empirical Investigation," The Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 155-189.
    5. Efraim Benmelech, 2009. "Asset Salability and Debt Maturity: Evidence from Nineteenth-Century American Railroads," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1545-1584, April.
    6. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
    7. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    8. David J. Denis & Valeriy Sibilkov, 2010. "Financial Constraints, Investment, and the Value of Cash Holdings," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 247-269, January.
    9. Liu, Xing & Liu, Fengzhong, 2022. "Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China," Finance Research Letters, Elsevier, vol. 47(PA).
    10. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    11. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    12. Campello, Murillo & Giambona, Erasmo, 2013. "Real Assets and Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(5), pages 1333-1370, October.
    13. Barry Eichengreen & Donghyun Park & Kwanho Shin, 2013. "Growth Slowdowns Redux: New Evidence on the Middle-Income Trap," NBER Working Papers 18673, National Bureau of Economic Research, Inc.
    14. Yihao Tian & Lijin Ding & Bin Yang & Feng Peng, 2022. "The Effects of De-Capacity Policy on Steel and Coal Firms’ Profitability: Evidence from China’s Listed Companies," Energies, MDPI, vol. 15(12), pages 1-17, June.
    15. Hongwu Zhang & Lequan Zhang & Keying Wang & Xunpeng Shi, 2019. "Unveiling Key Drivers of Indirect Carbon Emissions of Chinese Older Households," Sustainability, MDPI, vol. 11(20), pages 1-17, October.
    16. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    17. Harford, Jarrad & Klasa, Sandy & Walcott, Nathan, 2009. "Do firms have leverage targets? Evidence from acquisitions," Journal of Financial Economics, Elsevier, vol. 93(1), pages 1-14, July.
    18. Alexis Loublier & Philipp Mohl & Eric Ruscher & Borek Vasicek & Thomas Walsh, . "Quarterly Report on the Euro Area (QREA), Vol.14, No.4 (2015)," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    19. Huiping Zhu & Haifeng Gu & Habiba Halepoto, 2022. "Can Fulfillment of Social Responsibility Enable Enterprises to Innovate? The Role of Corporate Financialization and Agency Costs," Sustainability, MDPI, vol. 14(21), pages 1-22, October.
    20. Lai, Karen & Prasad, Ashna & Wong, George & Yusoff, Iliyas, 2020. "Corporate deleveraging and financial flexibility: A Chinese case-study," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    21. Liu, Guanchun & Zhang, Chengsi, 2020. "Economic policy uncertainty and firms' investment and financing decisions in China," China Economic Review, Elsevier, vol. 63(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Yuanyuan & Li, Jing & Liu, Guanchun & Lee, Chien-Chiang, 2021. "Economic policy uncertainty and firm’s cash holding in China: The key role of asset reversibility," Journal of Asian Economics, Elsevier, vol. 74(C).
    2. Ma, Huanyu & Hao, Dapeng, 2022. "Economic policy uncertainty, financial development, and financial constraints: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 368-386.
    3. Stavros E. Arvanitis & Theodoros V. Stamatopoulos & Dimitris Terzakis, 2018. "Is There a Non-linear Relationship of Market Value with Cash and Ownership?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 3-25, January-M.
    4. Grundy, Bruce D. & Verwijmeren, Patrick, 2020. "The external financing of investment," Journal of Corporate Finance, Elsevier, vol. 65(C).
    5. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2022. "Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 84(C).
    6. Dudley, Evan, 2012. "Capital structure and large investment projects," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1168-1192.
    7. Arnold, Marc, 2014. "Managerial cash use, default, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 305-325.
    8. Hossain Mohammad Reyad & Mohd Ashhari Zariyawati & Tze San Ong & Haslinah Muhamad, 2022. "The Impact of Macroeconomic Risk Factors, the Adoption of Financial Derivatives on Working Capital Management, and Firm Performance," Sustainability, MDPI, vol. 14(21), pages 1-19, November.
    9. Amore, Mario Daniele & Minichilli, Alessandro & Corbetta, Guido, 2011. "How do managerial successions shape corporate financial policies in family firms?," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1016-1027, September.
    10. Usman, Adam, 2022. "Cash holdings and real asset liquidity," International Review of Financial Analysis, Elsevier, vol. 83(C).
    11. Ahrends, Meike & Drobetz, Wolfgang & Nomikos, Nikos K., 2018. "Corporate cash holdings in the shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 112(C), pages 107-124.
    12. Bessler, Wolfgang & Drobetz, Wolfgang & Haller, Rebekka & Meier, Iwan, 2013. "The international zero-leverage phenomenon," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 196-221.
    13. Monika Wieczorek-Kosmala & Joanna Błach & Joanna Trzęsiok, 2018. "Analysis of Bankruptcy Threat for Risk Management Purposes: A Model Approach," IJFS, MDPI, vol. 6(4), pages 1-17, December.
    14. Sung Je Byun & Soojin Jo, 2018. "Heterogeneity in the dynamic effects of uncertainty on investment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(1), pages 127-155, February.
    15. Christos Floros & Emilios Galariotis & Konstantinos Gkillas & Efstathios Magerakis & Constantin Zopounidis, 2024. "Time-varying firm cash holding and economic policy uncertainty nexus: a quantile regression approach," Annals of Operations Research, Springer, vol. 341(2), pages 859-895, October.
    16. Huang, Qianqian & Jiang, Feng & Wu, Szu-Yin (Jennifer), 2018. "Does short-maturity debt discipline managers? Evidence from cash-rich firms' acquisition decisions," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 133-154.
    17. Kotcharin, Suntichai & Maneenop, Sakkakom, 2020. "Geopolitical risk and corporate cash holdings in the shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    18. Lim, Steve C. & Macias, Antonio J. & Moeller, Thomas, 2020. "Intangible assets and capital structure," Journal of Banking & Finance, Elsevier, vol. 118(C).
    19. Audrey Wenhsin Hsu & Sophia Hsintsai Liu, 2018. "Parent-subsidiary investment layers and the value of corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 651-681, October.
    20. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0291350. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.