Are group control associated with excess leverage? Empirical evidence

Abstract

This study investigates the effect of group control on the excess leverage of Chinese listed firms during 2003–2016. We find that the extent and probability of excess leverage in group-affiliated firms are significantly higher than stand-alone firms. After considering the firm ownership, we find that the excess leverage is more pronounced among private group-affiliations than the state-owned ones. Moreover, the empirical evidence indicates that better corporate governance and efficient institutional environment can effectively decrease the degree of excess leverage in group-affiliated firms. This paper provides a new perspective for understanding the over-leverage problem of Chinese firms and offers practical implications for the implementation of de-leverage policy.