Banking joint credit system and corporate leverage manipulation

This paper empirically examines the impact of the joint credit system of the banking industry on corporate leverage manipulation and its mechanism of action, using the administrative measures for joint credit granted by banking financial institutions released in 2018 as a quasi-natural experiment. The study shows that: (1) the joint credit system of the banking industry can significantly reduce the leverage manipulation of enterprises, particularly the manipulation of off-balance-sheet liabilities. (2) The joint credit system reduces corporate leverage manipulation through multiple channels, such as improving the quality of corporate information disclosure, decreasing financial flexibility, and lowering the scale of corporate impairment loss accruals on business assets. (3) Cross-border capital flows have an asymmetric effect on the governance effect of the joint credit system. Under conditions of cross-border capital outflows, surges in cross-border capital, and cross-border indirect capital flows, the joint credit system demonstrates a more pronounced effect in curbing leverage manipulation. (4) Heterogeneity analysis shows that, the governance effect of leverage manipulation of joint credit system is more obvious in enterprises with low capital market financing capacity, high internal control quality, and no bank-enterprise affiliations, as well as in industries characterized by intense competition, weaker bank competition, and a stricter financial regulatory environment. The results of this research provide theoretical guidance and institutional reference for how to effectively prevent corporate credit fraud, improve the quality and efficiency of financial services, and deepen the structural reform of the financial supply side.