 Local government debt and corporate cash holdings: Evidence from ChinaGuanglong Zhang and Chuyu Wang Pacific-Basin Finance Journal, 2025, vol. 91, issue C Abstract: This study, based on Chinese data, examines how local government debt (LGD) affects the cash holding policies of local firms. We find that a higher LGD significantly increases cash holding levels of local firms, mainly by impeding their access to external financing, particularly bank loans, prompting a precautionary cash buildup. Heterogeneous analyses suggest that the impact of LGD on cash holdings is more pronounced for firms without financing privileges (non-state-owned enterprises and those without political connections), firms located in provinces with a stronger non-state-owned economy, and firms located in cities with more restricted bank credit supply. Additionally, a higher LGD leads to slower adjustments of cash holdings toward target levels and higher market value of excess cash holdings for local firms. These findings provide new insights into the economic implications of increased government debt and contribute to our understanding of corporate cash holding policies. Keywords: Local government debt; Corporate cash holding policies; Crowding-out effect; China (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:91:y:2025:i:c:s0927538x25000599 DOI: 10.1016/j.pacfin.2025.102722 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 |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.