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Leverage structure and stock price synchronicity: Evidence from China
1School of Economics, Chongqing Technology and Business University, Chongqing, China.
Plos One
|July 2, 2020
Summary
Leverage structure, including operating and financing leverage, negatively impacts stock price synchronicity. This effect intensifies with higher synchronicity and is moderated by firm profitability, market capitalization, and state ownership.
Area of Science:
- Corporate Finance
- Market Microstructure
- Financial Economics
Background:
- Stock price synchronicity is a key indicator of information asymmetry.
- Leverage structure is a critical determinant of firm financial policy and performance.
- Understanding the nuanced impact of different leverage components is essential for financial analysis.
Purpose of the Study:
- To investigate the distinct impacts of operating leverage and financing leverage on stock price synchronicity.
- To analyze how these impacts vary across different levels of stock price synchronicity using quantile regression.
- To examine the moderating effects of firm profitability, market capitalization, and state ownership on the leverage-synchronicity relationship.
Main Methods:
- Decomposition of total leverage into operating and financing leverage.
- Application of quantile regression to model the relationship between leverage components and stock price synchronicity.
- Empirical analysis of moderating factors including firm profitability, market capitalization, and state ownership.
Main Results:
- Both operating and financing leverage exhibit a negative relationship with stock price synchronicity.
- The negative impact of leverage on synchronicity increases at higher synchronicity levels.
- Financing leverage's effect is moderated by firm profitability and market capitalization, while operating leverage's effect is not.
- State-owned enterprises show a heightened impact of both leverage components on stock price synchronicity.
Conclusions:
- Leverage structure significantly influences stock price synchronicity, with distinct effects for operating and financing leverage.
- Firm-specific characteristics and ownership structure play a crucial role in modulating the impact of leverage on information asymmetry.
- The findings offer valuable insights for investors and policymakers regarding capital structure decisions and market efficiency.
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