Stringent Financial Regulation and Dynamic Adjustment of Corporate Capital Structure: Evidence from the New Asset Management Regulations
WANG Bo, WU Zhenlun, LUO Ronghua, ZHANG Xiaomei
School of Finance / Institute of Chinese Financial Studies, Southwestern University of Finance and Economics; Chengdu Branch, Agricultural Bank of China
Summary:
The disorderly expansion of shadow banking poses a potential threat to economic and financial stability. Consequently, mitigating financial risks and promoting financial deleveraging have become key objectives of the New Asset Management Regulations. Using this reform as a quasi-natural experiment, this paper employs a difference-in-differences model to investigate whether stringent financial regulation can drive the dynamic adjustment of corporate capital structures and thereby facilitate structural deleveraging. The findings show that, following the implementation of the regulations, non-financial firms with higher involvement in shadow banking activities exhibit faster dynamic adjustments in their capital structures—that is, their actual capital structure converges more quickly toward the target structure. Mechanism analysis further reveals that the regulations foster this adjustment by alleviating financing constraints and improving the efficiency of financial resource allocation. Distinguishing between the directions of the dynamic adjustment, the study identifies an asymmetric effect: over-leveraged firms significantly accelerate downward adjustments, while under-leveraged firms do not exhibit significant upward adjustments. This suggests that the regulations promote structural deleveraging at the micro firm level, specifically by driving over-leveraged firms to lower their leverage. Additional evidence indicates that, prior to the implementation of the regulations, firms' participation in asset management activities was primarily motivated by profit-seeking behavior and the desire to maintain bank-firm relationships. The reform of the New Asset Management Regulations provides compelling empirical evidence for strengthening the financial regulatory framework and enhancing the allocation efficiency of financial resources. From the unique perspective of dynamic capital structure optimization, this study sheds light on how regulatory gaps distort corporate investment and financing behavior, as well as the structural implications of stringent financial regulation at the micro level. The conclusions of this paper yield important policy implications. First, policymakers must fully recognize the incentive mechanisms underlying non-financial firms' engagement in shadow banking and their potential economic consequences. The analysis shows that, before the regulations, firms' participation in shadow banking was not precautionary but rather driven by profit-seeking motives and the maintenance of bank-firm relationships. Regulatory loopholes created opportunities for low-cost, lightly constrained, and seemingly risk-free arbitrage, thereby inducing a strong tendency toward shadow banking at the firm level. At the micro level, this inclination distorted firms' resource allocation decisions in two major ways. One way is resource misallocation and deviation from core business activities. Arbitrage opportunities encouraged firms to channel substantial resources into highly leveraged and structurally complex financial products rather than productive activities in the real economy. This weakened their capacity for core business development and eroded long-term competitiveness. To mitigate such risks, policies should encourage firms to expand investment in the real economy, particularly in technological innovation and productive activities. Targeted instruments such as tax incentives and financial support can help guide corporate funds toward long-term development and core operations, rather than short-term speculative arbitrage. The other way is idle capital circulation and risk accumulation. When firms, acting as “capital suppliers,” became deeply embedded in the shadow banking system, their capital operations increasingly took on short-term and complex forms, creating multilayered financial chains. As a result, funds circulated repeatedly within the financial system rather than flowing into the real economy. This reduced the efficiency of financial resource allocation, raised financing costs for the real sector, and—more importantly—heightened systemic fragility and amplified potential systemic risks. To address these challenges, policies should strengthen information disclosure requirements for both firms and financial institutions, enhance the transparency of financial products, curb idle capital circulation, and ensure that funds are directed toward the real economy, thereby fostering a virtuous cycle between financial development and economic growth. Second, regulators should continue to advance financial regulatory reforms by establishing a unified supervisory framework for all types of financial institutions and instruments, thereby effectively closing institutional gaps and addressing supervisory blind spots. The empirical results of this study demonstrate that the New Asset Management Regulations, as a representative example of stringent financial regulation, have been highly effective in curbing the expansion of shadow banking—particularly in prompting firms heavily involved in such activities to accelerate capital structure adjustments. This experience illustrates that closing regulatory loopholes, narrowing arbitrage opportunities, and strengthening rule-based constraints can safeguard financial stability at the macro level while simultaneously promoting structural deleveraging and dynamic capital structure optimization at the micro level. From a broader institutional perspective, the New Asset Management Regulations not only provide a regulatory model for managing shadow banking risks and advancing the standardized operation of financial markets but also offer a practical case for China's transition from “institution-based” to “function-based” and “behavior-based” financial regulation.
王博, 吴振伦, 罗荣华, 张晓玫. 金融监管与企业资本结构动态调整——来自资管新规的证据[J]. 金融研究, 2026, 547(1): 57-75.
WANG Bo, WU Zhenlun, LUO Ronghua, ZHANG Xiaomei. Stringent Financial Regulation and Dynamic Adjustment of Corporate Capital Structure: Evidence from the New Asset Management Regulations. Journal of Financial Research, 2026, 547(1): 57-75.
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