The crowding out effect of government debt on corporate financing: Firm-level evidence from China

Qiongzhi Liu, Yun Bai and Hexin Song

Structural Change and Economic Dynamics, 2023, vol. 65, issue C, 264-272

Abstract: The local government debt risk has attracted government regulators' attention, and its economic consequences have become a new research topic. Based on data from Chinese prefecture-level cities, this paper empirically examines the impact of local government debt on corporate financing from 2006-2018. The results show that government debt financing reduces total corporate debt financing, increases the cost of corporate debt financing, and has a crowding-out effect on corporate debt financing. Local government financing through the financing platform company injects quality projects and reduces the financing constraints of the financing platform to attract credit resources from banks. Insides, the government provides a guarantee for the financing platform company and reduces the bond risk of the financing platform to attract investors to purchase. Severing the link between local governments and financing platform companies can reduce the crowding-out effect to a certain extent. The results of this paper provide evidence for the micro effects of local government fiscal policy, which are informative for further improving the financing capacity of enterprises.

Keywords: Government debt; Corporate finance; Crowding-out effect; Credit resource; Debt risk (search for similar items in EconPapers)
JEL-codes: G32 H63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:65:y:2023:i:c:p:264-272

DOI: 10.1016/j.strueco.2023.03.005

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