Political uncertainty and corporate debt financing: empirical evidence from China

ABSTRACT

We examine the influence of political uncertainty on corporate debt financing under the Chinese highly specialized political system. A new reasonable and effective alternative indicator, official turnover reason, is constructed to measure different political uncertainty level. Robust results suggest that listed companies will keep low debt financing level and smooth debt financing volatility under political uncertainty, which will be weakened during the global financial crisis. We also find that the listed company will raise equity financing level while overall financing is significantly reduced. In addition, SOEs are more sensitive to political uncertainty than non-SOEs, as they have stronger political connections with government officials.

KEYWORDS:

• Political uncertainty
• debt financing
• turnover reason
• Chinese market

JEL CLASSIFICATION:

• G32
• G38

Acknowledgements

This work was supported by the National Natural Science Foundation of China under Grant numbers [71571007, 71333014].

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71571007, 71333014].