Capital account liberalization and corporate maturity mismatch: The role of bank competition

This paper investigates the causal effect of capital account liberalization on corporate maturity mismatch of financing and investment and further explores the role of bank competition in shaping the effect. The results show that capital account liberalization significantly reduces corporate maturity mismatch by lowering financing costs and improving the quality of internal controls of the firms. The effect is more pronounced for firms with higher financing constraints and growth opportunities, technological and manufacturing firms, and firms located in market-driven and capital-intensive regions. We also find that bank competition reinforces the channels of credit financing costs and the quality of internal control of capital account liberalization, thus enhancing its overall effect on corporate maturity mismatch. This paper offers a richer understanding of how capital account liberalization and competition in the banking sector jointly affect corporate debt structure and match decisions between investment and financing structure. •Evidence on how capital account liberalization and bank competition jointly affect corporate maturity mismatch is limited.•Our paper analyzes this topic using a large sample of listed firms in China.•Capital account liberalization helps improve corporate maturity mismatch between investment and finance.•Channels include reducing financing costs and improving the quality of internal control.•Bank competition can reinforce the positive effect of capital account liberalization on corporate maturity mismatch.