Implications of Government Borrowing for Corporate Financing in Emerging Economies: A Crowding Out Kuznets Curve

Muhammad Ali Nasir, Toan Huynh (), Quynh Thi Nhu Do (), Cuc Thi Nguyen () and Quynh Thi Tran ()
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Quynh Thi Nhu Do: Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam
Cuc Thi Nguyen: Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam
Quynh Thi Tran: Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2020, vol. 23, issue 02, 1-27

Abstract: This paper investigates the implications of government borrowing for corporate financing and capital structure of the firms. In doing so, we explore the effects of government debt, macroeconomic and firm-specific factors on firm’s choice of financing and capital structure. We draw on the 10-year data (2007–2017) of 225 non-financial firms listed on the Ho Chi Minh Stock Exchange (HoSE) and employ the system Generalized Method of Moments (system-GMM) for estimation. Our key findings suggest that the government borrowing and debt financing for the Vietnamese listed companies have a negative relationship. Specifically, the short-term corporate leverage structure is influenced more strongly than the long-term leverage structure. We also define the threshold for the association between government borrowing and corporate financing decisions by capturing a U-shaped relationship i.e., Crowding out Kuznets Curve (CKC). Furthermore, macroeconomic factors also show a statistically significant impact on corporate financing decisions. Our findings have profound implications for the fiscal and public policymakers, investors as well as corporate finance managers and firms.

Keywords: Government borrowing; crowding out; Corporate Debt; Capital Structure; GMM; Crowding-out Kuznets Curve (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0219091520500174

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