Financial eco-environment, financial resource allocation efficiency, and dynamic capital structure adjustment: Evidence from China

The effect is also more pronounced among firms with greater external financing dependence and among non-state-owned enterprises, although the ownership-group difference is only marginally significant at the 10% level. Third, an improved financial eco-environment is associated with better alignment between firm productivity and debt financing costs, thereby reducing frictions in capital structure adjustment. Regional-level extensions further indicate that credit resource allocation efficiency and savings-to-investment conversion constitute important transmission channels.

Fourth, the effect exhibits clear state dependence: firms’ adjustment responses strengthen significantly once the financial eco-environment crosses a certain threshold. The effect also tends to be stronger under relatively accommodative monetary policy conditions. However, the evidence is somewhat sensitive to the treatment of time trends and to inference with a small number of time clusters.</p>