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Local Government Debt and Firm Leverage: Evidence from China
Author(s) -
Liang Yousha,
Shi Kang,
Wang Lisheng,
Xu Juanyi
Publication year - 2017
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/aepr.12176
Subject(s) - leverage (statistics) , china , debt , monetary economics , business , stimulus (psychology) , financial crisis , local government , financial system , economics , finance , macroeconomics , psychology , public administration , machine learning , computer science , political science , law , psychotherapist
China's local government debt financing has been expanded aggressively to support infrastructure investment, especially since the enactment of four‐trillion‐yuan stimulus plan to stimulate the economy post global financial crisis. At the same time, the rapid increase of firm‐level leverage ratio of state‐owned enterprises (SOEs) and the decline of leverage ratio of non‐SOEs jointly deteriorated China's credit misallocation problem. In this study, we empirically test the effect of local government debton firm leverage in China. We find that an expansion of local government debt significantly crowded out the leverage of non‐SOEs, while crowded in that of SOEs. Moreover, the effect differed across industries and sectors.