Does resident leverage volatility affect corporate profitability?: An empirical study from Chinese A‐share listed companies

Abstract

AbstractThe increase in resident leverage is expected to promote the growth of retail consumption, thereby creating favorable macro conditions for companies to reduce leverage and destock. However, the increase in resident leverage in China has been accompanied by a continuous decline in the growth of retail consumption, which has a negative impact on the external environment of enterprises. The unbalanced panel data of 2218 nonfinancial listed companies in China from 2010 to 2018 were used to investigate the relationship and mechanism between resident leverage and corporate profitability. The empirical results show that the increase in resident leverage has a negative impact on the profitability of Chinese companies. In addition to the direct impact, resident leverage has a transmission mechanism that affects corporate profitability through debt level, degree of financialization, and degree of zombification. In order to avoid the heterogeneity of research results caused by differences in corporate characteristics, the heterogeneity test was conducted by distinguishing the nature of enterprise ownership, innovation input, and financing constraints. The test of the heterogeneity of enterprise ownership shows that residents' increased leverage has a greater restraint on the profitability of state‐owned enterprises than private enterprises. The test of the heterogeneity of enterprise innovation investment shows that residents' increasing leverage reduces the profitability of high‐innovation enterprises more strongly than low‐innovation enterprises. The heterogeneity test of financing constraints shows that residents' increasing leverage has a more obvious effect on reducing the profitability of companies with high financing constraints than with low financing constraints.