Leverage and investment efficiency: Evidence from China's deleveraging policy

China's Central Government issued a deleveraging policy in 2018 to reduce the leverage of state-owned enterprises (SOEs). This paper takes China's deleveraging policy as an exogenous event and investigates the causal effects of the leverage on investment efficiency. The results show that after the implementation of the deleveraging policy, the decreasing leverage of the Chinese SOEs improves their investment efficiency. This paper contributes to the literature on leverage and investment and will be of interest to the emerging market's policy makers as it provides evidence that government intervention in the market economy can improve resource allocation.