Mitigating financing constraints under economic uncertainty: The role of implicit government guarantees in China

Sifeng Bi, Na Wei, Anna Min Du and Tiran Zhou

Research in International Business and Finance, 2025, vol. 76, issue C

Abstract: In the context of economic policy uncertainty (EPU), firms face significant financing constraints, especially in accessing credit. To address this, governments often provide implicit government guarantees (IGG) to alleviate these constraints. This study examines the effects of EPU on firm credit financing activities from an IGG perspective, using a sample of Chinese A-share listed firms from 2010 to 2020. The findings indicate that EPU negatively impacts firm credit financing activities, but the presence of IGG mitigates these effects. The heterogeneous analysis reveals that IGG primarily benefits firms taking more risks or facing severe financial constraints. Regionally, IGG is more effective in provinces with lower marketisation and higher fiscal strength, helping distressed firms secure more bank credit at lower costs. These results have important implications for policymakers, shareholders, and stakeholders regarding the role of IGG in moderating the impact of EPU on firm credit financing activities.

Keywords: Economic policy uncertainty (EPU); Implicit government guarantees (IGG); Credit financing; Financial constraints (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925000753

DOI: 10.1016/j.ribaf.2025.102819

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