The Impact of Banking Competition on Firm Credit Risk and Leverage

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 r...

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Autores principales:	Chengxiao Feng, Zhubo Li, Zhen Peng
Formato:	article
Lenguaje:	EN
Publicado:	SAGE Publishing 2021
Materias:	History of scholarship and learning. The humanities AZ20-999 Social Sciences H
Acceso en línea:	https://doaj.org/article/7df55d8cffb045d1a6d5965b9e144a6a
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spelling	oai:doaj.org-article:7df55d8cffb045d1a6d5965b9e144a6a2021-12-02T02:05:13ZThe Impact of Banking Competition on Firm Credit Risk and Leverage2158-244010.1177/21582440211061529https://doaj.org/article/7df55d8cffb045d1a6d5965b9e144a6a2021-11-01T00:00:00Zhttps://doi.org/10.1177/21582440211061529https://doaj.org/toc/2158-2440A 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.Chengxiao FengZhubo LiZhen PengSAGE PublishingarticleHistory of scholarship and learning. The humanitiesAZ20-999Social SciencesHENSAGE Open, Vol 11 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	History of scholarship and learning. The humanities AZ20-999 Social Sciences H
spellingShingle	History of scholarship and learning. The humanities AZ20-999 Social Sciences H Chengxiao Feng Zhubo Li Zhen Peng The Impact of Banking Competition on Firm Credit Risk and Leverage
description	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.
format	article
author	Chengxiao Feng Zhubo Li Zhen Peng
author_facet	Chengxiao Feng Zhubo Li Zhen Peng
author_sort	Chengxiao Feng
title	The Impact of Banking Competition on Firm Credit Risk and Leverage
title_short	The Impact of Banking Competition on Firm Credit Risk and Leverage
title_full	The Impact of Banking Competition on Firm Credit Risk and Leverage
title_fullStr	The Impact of Banking Competition on Firm Credit Risk and Leverage
title_full_unstemmed	The Impact of Banking Competition on Firm Credit Risk and Leverage
title_sort	impact of banking competition on firm credit risk and leverage
publisher	SAGE Publishing
publishDate	2021
url	https://doaj.org/article/7df55d8cffb045d1a6d5965b9e144a6a
work_keys_str_mv	AT chengxiaofeng theimpactofbankingcompetitiononfirmcreditriskandleverage AT zhuboli theimpactofbankingcompetitiononfirmcreditriskandleverage AT zhenpeng theimpactofbankingcompetitiononfirmcreditriskandleverage AT chengxiaofeng impactofbankingcompetitiononfirmcreditriskandleverage AT zhuboli impactofbankingcompetitiononfirmcreditriskandleverage AT zhenpeng impactofbankingcompetitiononfirmcreditriskandleverage
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The Impact of Banking Competition on Firm Credit Risk and Leverage

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