Stringent Financial Regulation and Corporate Leverage Manipulation

Abstract

Preventing systemic financial risk is a cornerstone of economic security and social stability, as well as a fundamental prerequisite for the sound operation of the financial system and high-quality economic development. Treating the New Asset Management Regulations as a policy shock, this study constructs a generalized difference-in-differences (DID) model using panel data for Chinese non-financial listed companies from 2008 to 2023 and systematically examines the mechanisms and heterogeneous effects of stringent financial regulation on corporate leverage manipulation. The results show that, through look-through regulation, the New Asset Management Regulations effectively compress the scope for shadow-banking arbitrage and directly reduce corporate leverage manipulation. The policy also significantly restrains leverage manipulation by directing credit resources toward more efficient uses, improving the quality of corporate information disclosure, and enhancing financing efficiency. The inhibitory effect is particularly pronounced among firms with relatively high allocations to financial assets. Heterogeneity analysis further indicates that the effect is stronger in regions with greater financial deepening, in industries with lower market concentration, and in firms whose managers possess stronger financial expertise. Accordingly, this study recommends deepening differentiated look-through regulation, improving coordination in the regional allocation of financial resources, and strengthening internal corporate governance to establish a long-term mechanism for curbing leverage manipulation and to reinforce the foundations of systemic financial-risk prevention.