Cross-border Capital Flows, Macro-prudential Supervision, and Dynamic Adjustment of Capital Structure

The economic consequences of cross-border capital flows must be clarified before further capital account liberalization. This paper analyzes the impact of cross-border capital flows on the dynamic adjustment of the firm’s capital structure and the moderating effect of macro-prudential supervision. It finds that cross-border capital flows can reduce the firm’s capital structure adjustment speed, and crossborder capital direct investment has the strongest impact. Besides, capital-based macro-prudential supervision can reduce the impact of cross-border capital flows, but loan-based and liquidity-based macroprudential supervision will exacerbate that. Further research indicates that cross-border capital flows reduce the speed of capital structure adjustment of firms with downward and upward capital structure deviation by lowering the debt size and equity size, respectively. In addition, financing constraints and financial flexibility are the channels through which cross-border capital flows affect the firm’s capital structure adjustment speed. Furthermore, cross-border capital surges and stops can reduce the firm’s capital structure adjustment speed. This study has policy value for the scientific design of the process of capital account liberalization and the macro-prudential supervision framework of cross-border capital flows, thus optimizing the firm capital structure.