The Impact of Financial Development on Financial Soundness of Listed Companies in China

다국어 초록 (Multilingual Abstract)

With the ongoing deepening of China’s financial sector reforms, advances in the financial sphere have emerged as a pivotal force powering the structural transformation and modernization of the real economy. Ranging from the growth of capital markets and the creation of new financial tools to progress in interest rate deregulation and the broadening of funding avenues, the financial ecosystem has consistently improved its role in enhancing the efficiency of capital deployment, lowering operational frictions, and mitigating corporate funding hurdles. Under this evolving landscape, as key actors in the market economy, enterprises’ financial resilience—defined as their capacity to weather internal and external shocks while sustaining long-term viability—directly influences not only their own survival and growth but also plays a critical role in supporting the steady functioning of the broader macroeconomy. In recent years, amid downward economic pressure and rising external uncertainty, some listed firms have fallen into financial distress due to problems such as excessive financial leverage, imbalanced liquidity management, and aggressive investment decisions, highlighting the key role of Financial Soundness in enhancing corporate risk resilience. Notably, while financial development provides enterprises with more financing opportunities and room for capital operation, it may also intensify corporate financial risks on account of information disparities and the mounting complexity of financial vehicles. Examples include repayment pressure from over-reliance on short-term financing and losses caused by blind participation in financial derivative transactions. Therefore, clarifying the internal logic between financial development and corporate Financial Soundness, and identifying the specific pathways and boundary conditions through which financial development improves Financial Soundness, has become an urgent issue for both academia and industry. Especially given the heterogeneity in corporate governance structures, different managerial characteristics and governance mechanisms may significantly affect firms’ ability to seize financial development opportunities and control risks, thereby leading to heterogeneous effects of financial development on Financial Soundness. An in-depth investigation into this relationship carries great theoretical and practical value for understanding how financial development can effectively serve the sound growth of enterprises. Accordingly, this work chooses China’s A-share listed entities registered at the two major stock markets. Relying on the collection and processing of relevant data, the current work examines the impact of financial development on corporate Financial Soundness by measuring financial development from two dimensions: digital finance and green finance. Furthermore, firm governance characteristics—including the share of female senior managers, the ratio of independent board members, the age differences among the top management team,and CEO duality—are taken as regulating factors to investigate their function in the linkage between financial development and financial soundness. Statistical outcomes reveal that financial advancement has a remarkably positive impact on enterprise financial soundness; that is, the improvement of financial development helps enhance firms’ financial soundness. Further analysis reveals that the moderating effects of different corporate governance characteristics vary. The age heterogeneity of the top management team and CEO duality exert negative impacts on financial soundness and lessen the promoting influence of financial expansion. In contrast, the proportion of female executives and the proportion of independent directors show significantly positive independent effects on financial soundness and strengthen the promoting effect of financial development. This research enriches the micro-level evidence on the relationship between financial development and corporate financial behavior, reveals the moderating role of corporate governance characteristics, and helps broaden the research perspective of financial soundness theory. Meanwhile, it provides practical references for Chinese listed firms to leverage financial development opportunities and optimize corporate governance so as to improve financial soundness, which is of great significance for promoting corporate sustainable development.

목차 (Table of Contents)

• CHAPTER 1. Introduction 1
• 1.1 Research Background 1
• 1.2 Research Significance 6
• 1.3 Research Content and Technical Route 8
• 1.4 Research Methods 11
• 1.5 Research Innovations13
• CHAPTER 2. Theoretical Background and Literature Review 14
• 2.1 Related Concepts 14
• 2.1.1 Finance Development 14
• 2.1.2 Financial Soundness17
• 2.1.3 Corporate Governance Characteristics （Concepts of Moderating Variables） 18
• 2.2 Theoretical Background20
• 2.2.1 Financial Development Theory 20
• 2.2.2 Resource-Based Theory 21
• 2.2.3 Principal-Agent Theory 23
• 2.2.4 Upper Echelons Theory 25
• 2.3 Literature Review 27
• 2.3.1 Research on Financial Development 27
• 2.3.2 Research on Financial Soundness 30
• 2.3.3 Research on Financial Development and Financial Soundness32
• 2.3.4 Research on the Moderating Effect of Corporate Governance Characteristics 34
• CHAPTER 3. Research Hypotheses 37
• 3.1 Effects of Financial Development on Financial Soundness 37
• 3.1.1 Effects of Green Finance on Financial Soundness 37
• 3.1.2 Effects of Digital Finance on Financial Soundness 38
• 3.2 The Moderating Effect of the Proportion of Female Executives41
• 3.3 The Moderating Effect of the Proportion of Independent Directors 42
• 3.4 The Moderating Effect of Age Heterogeneity of the Top Management Team. 44
• 3.5 The Moderating Effect of CEO Duality 45
• CHAPTER 4. Research Design 47
• 4.1 Sample Selection and Data Sources 47
• 4.2 Variable Definitions 48
• 4.2.1 Independent Variables 48
• 4.2.2 Dependent Variable 48
• 4.2.3 Moderating Variables 49
• 4.2.4 Control Variables 49
• 4.3 Model Specification 50
• 4.3.1 Baseline Model Specification 50
• 4.3.2 Moderation Model Specification 51
• CHAPTER 5. Empirical Results 52
• 5.1 Descriptive Statistics 52
• 5.2 Correlation Analysis 53
• 5.3 VIF Test Results 56
• 5.4 Baseline Regression 57
• 5.5 Moderating Effects of the Top Management Team 58
• 5.5.1 Moderating Effect of the Proportion of Female Executives 58
• 5.5.2 Moderating Effect of the Proportion of Independent Directors 63
• 5.5.3 Moderating Effect of Age Heterogeneity 67
• 5.5.4 Moderating Effect of CEO Duality 71
• 5.6 Heterogeneity Analysis76
• 5.6.1 From the Perspective of Industrial Technological Content 76
• 5.6.2 From the Perspective of Industrial Pollution Attribute 79
• 5.6.3 From the Perspective of Regional Development Level 80
• CHAPTER 6. Robustness Checks 85
• 6.1 Excluding the Pandemic Year 85
• 6.2 Robustness Test with Fixed Effects 86
• 6.3 2SLS Test88
• 6.4 Further Tests 92
• CHAPTER 7. Conclusions and Recommendations 93
• 7.1 Research Conclusions 93
• 7.2 Recommendations 97
• 7.3 Research Limitations and Prospects 102
• References 104