The influence of Exchange Inquiry Letters on Corporate Leverage Manipulation: –Based on Text Information Analysis and Data Analysis

Abstract

Leverage manipulation can disguise the true level of corporate leverage, increase the risk of corporate debt default, and reduce the quality of balance sheet information. As a front-line regulator, it is important that the inquiry letter system adopted by the stock exchange can identify corporate risks and thus curb corporate leverage manipulation. In the text analysis of the inquiry letters of the financial report, it is found that the frequency of keywords such as "assets", "liabilities" and "debts" is very high. Among the 3908 inquiry letters of the financial report collected, "assets" appears in 3374 inquiry letters, and the frequency of keywords is 5657 times in total; "debt" appeared in 2179 inquiry letters, and the frequency of key words totaled 3150 times; "Asset liability ratio" and "leverage" appeared in 481 and 26 inquiry letters respectively, and the keyword frequency was 507 times in total, while the company's leverage ratio was calculated from the liabilities and assets in the balance sheet. The impact of exchange inquiry letters on corporate leverage manipulation is examined by data analysis, using all A-share listed companies in China from 2014 to 2020 as the research sample. The study finds that exchange financial report inquiry letters can significantly inhibit corporate leverage manipulation, and the inhibitory effect is stronger for highly leveraged and non- state-owned firms. The study has important implications and theoretical value for the effective promotion of "deleveraging" policy.