The Impact of Banking Competition on Firm Credit Risk and Leverage
Bibliographic Data
| ID | 3568155 |
|---|---|
| Authors | Chengxiao Feng (Wuhan Business University), Zhubo Li (0000-0003-2390-9455, Wuhan University, corresponding author), Zhen Peng (0000-0001-6415-8841, Wuhan Business University) |
| Year | 2021 |
| Volume | 11 |
| Issue | 4 |
| Publication date | 2021-10-01 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | SAGE Open (JOURNAL) |
| Journal identifiers | ISSN: 2158-2440 • E-ISSN: 2158-2440 |
| Publisher | SAGE Publications Inc (PUBLISHER) |
| DOI | 10.1177/21582440211061529 |
| OpenAlex | W3215228806 |
| Language | EN |
| References cited | 12 |
A firm's default risk is closely related to its macrofinancial stability. As financial reform deepens, banking competition may ease firms' credit constraints, encouraging them to increase their leverage and default risks. This study uses contingent claims analysis to examine firms' asset-liability ratio and default distance. We find that companies have low leverage and low overall default risks. Moreover, a pro-cyclical effect exists between leverage and economic growth. As banking competition becomes more intense, the default risk decreases, but firms' leverage ratio rises significantly. The impact is more prominent for highly leveraged firms. Our findings also indicate that utilizing the contingent claims analysis method to measure firms' leverage and default risks provides more accurate results. Moreover, we provide empirical evidence of the impact of banking competition on firms' leverage and credit risks. The results suggest that enhancing financial competition has a positive effect on easing credit constraints and reducing default risks
Business · Credit risk · Default · Default Risk · Economics · Financial system · Monetary economics · Probability of default · Banking stability, regulation, efficiency · Corporate Finance and Governance · Credit Risk and Financial Regulations · Finance
| Highly cited | No |
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