 Does reform policy of municipal bonds raise firm risk? A quasi-natural experiment from ChinaDapeng Tang, Yiming Yang, Hao Zheng and Mebrahtu Tesfagebreal Gebrehans Pacific-Basin Finance Journal, 2024, vol. 86, issue C Abstract: Does reform policy of municipal bonds increase firm risk? We address this question by examining the effects of the ‘Local Issuance and Local Repayment’ (LILR) reform policy launched by the Chinese central government on firm stock return volatility between 2009 and 2019. We find that the LILR reform policy increases the volatility of firms' stock returns. Possible explanations for the effect of reform policy are that it exacerbates firms' financial constraints and reduces the effectiveness of fiscal policy. Consistently, we find that the aggravating effect of reform policy is more pronounced in regions characterized by worse financial environment, worse fiscal condition, firms in growth and decline stages and in downstream and service and support industries. We provide empirical evidence from a Chinese quasi-natural experiment to address the long-term economic development issues of local government debts. Keywords: Reform policy of municipal bonds; Firm risk; Local government debt (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24001756 DOI: 10.1016/j.pacfin.2024.102424 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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