Does the Deleveraging Policy Increase the Risk of Corporate Debt Default: Evidence from China

This article investigates whether a deleveraging policy influences the risk of corporate debt default. We provide evidence that the deleveraging policy can increase the risk of corporate debt default by reducing the supply of credit funds and increasing the cost of debt financing, and the conclusions remain robust after controlling for endogeneity problems. Furthermore, we find that the impact of the deleveraging policy on corporate debt default risk is more significant for enterprises with poor operating performance, nonstate-ownership, backward capacity, and developed shadow banking areas. Those findings provide a theoretical basis for the macrodecision transition from deleveraging to stabilizing leverage.