Local governments’ debt risk and enterprise innovation

Qingbin Meng, Ziya Zhong and Ruijun Zhang

Applied Economics Letters, 2024, vol. 31, issue 12, 1100-1103

Abstract: This paper applies KMV modified model to construct a local governments’ debt risk index by using the local governments’ financial revenue and expenditure data and the data of Chinese A-share listed companies, and studies the relationship between local government debt risk and enterprise innovation. The results show that the increased risk of local government debt can encourage enterprises to increase R&D investment, which is more significant when the enterprises are politically connected, the provincial officers have a longer tenure, the provinces are more market-oriented, and the enterprises get more refunds of taxes. This paper provides empirical evidence for the state theory, which suggests that competition for political promotion among local officials can make the goal of personal political promotion of officials agree to intend to maximize social welfare.

Date: 2024
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DOI: 10.1080/13504851.2023.2176433

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