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Land Finance, Corporate Leverage and Debt Risk

【Authors】
ZHOU Bin, ZHOU Cai
【WorkUnit】
Dongbei University of Finance and Economics, 116025.
【Abstract】

This paper takes the 2004—2016 non-financial listed companies on Shanghai and Shenzhen stock exchanges as research samples, combined with urban and macro-level data about land use right transfer in prefecture-level cities, and try to capture the intrinsic link between land finance and non-financial listed companies. The study finds that the increase of local government’s dependence on land finance will increase the probability of excessive debt of companies. In the case of introducing control variables that may interfere with the estimation results and using instrumental variables to alleviate the potential endogenous problem, the conclusion remains robus. On this basis, this paper further studies the relationship between land finance and corporate solvency and sustainable development capability. It finds that the increase in land fiscal dependence will increase the company‘s short-term debt repayment risk and future debt repayment pressure, while reducing the profitability and sustainable development ability of over-indebted companies. This phenomenon is particularly evident in companies with lower real estate collateral value, state-owned enterprises, and enterprises in the eastern region with higher debt levels. This paper provides a new perspective for further understanding of the high leverage phenomenon among non-financial enterprises and the prevention and resolution of debt risks in the context of China’s supply-side structural reform.
 
JEL:D24, E62, G32

【KeyWords】
Land Finance, Corporate Leverage, Excessive Debt, Debt Risk