Private enterprise identity and short-term debt for long-term investment: Evidence from China

• Published in: Finance research letters Vol. 67; p. 105901
• Main Authors: Chen, Lirong, Mu, Ruirui, Dai, Yanwen, Huang, Xuanhao
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.09.2024
• Subjects: Financing cost; Identity issue; Private enterprises; Short-term debt for long-term investment; Private enterprises; Identity issue; Financing cost; Short-term debt for long-term investment
• ISSN: 1544-6123
• DOI: 10.1016/j.frl.2024.105901

•Identity issues increase the degree of short-term debt for long-term investments among private enterprises.•Identify issues exacerbating information asymmetry, increasing operational risk and financing costs, thereby compelling private enterprises to resort to short-term financing.•Analysts’ attention and board independence can influence the effect of identity issues on short-term debt for long-term investments. Using a sample of private enterprises listed on China's A-shares from 2003 to 2021, we find that, identity issues increase the degree of short-term debt for long-term investments. Furthermore, mechanism tests indicate that identity issues aggravate the short-term debt for long-term investment by exacerbating information asymmetry, increasing operational risk and financing cost. We also reveal that the influence of identity issues weakens with high corporate analyst attention and strong board of directors' independence. The study contributes to the literature by examining the impacts of private enterprises’ identity issues on financial decision-making from the evidence from China.