Disentangling Active vs. Passive Mismatch: The Role of Retail Investor Sentiment in Shaping Corporate Capital Allocation—Evidence from China

Retail investors are the "capillaries" of the capital market and determine the fundamental vitality of the investment and financing market. Based on the data from Chinese A-share listed firms from 2008 to 2023, and utilizing incremental information from cash flow statements to identify corporate behaviors of "short-term borrowing for long-term investment"( SFLI) and "long-term borrowing for short-term investment,"( LFSI) this study employs a double machine learning model to examine the causal effect of retail investor sentiment on corporate investment-financing mismatch. results show that elevated retail investor sentiment significantly exacerbates corporate investment-financing mismatch. Compared to "short-term borrowing for long-term investment," sentiment changes have a more economically significant effect on "long-term borrowing for short-term investment" behaviors. Heterogeneity tests reveal that the influence of retail investor sentiment is more pronounced in non-state-owned enterprises, firms with higher ownership balance, lower audit fees and media scrutiny, higher information asymmetry, lower institutional ownership, and weaker resource capabilities. Mechanism tests indicate that retail investor sentiment aggravates corporate investment-financing mismatch by increasing managerial overconfidence and prompting more aggressive strategic decisions. This paper identifies the mechanism through which retail investor sentiment affects corporate investment-financing mismatch, constructs a framework distinguishing "active" and "passive" mismatches, supplements behavioral finance explanations for mismatch motivations, and provides a new perspective for understanding the impact of retail behavior on corporate resource allocation in China's capital market.