Local government debt reform and corporate environmental investment: evidence from China

Facing increasingly stringent resource constraints, corporate green investment decisions have become more dependent on the external policy environment. Using manually collected data on Chinese listed firms from 2010 to 2023, this study examines the effect of local government debt management reform on corporate environmental investment. The results show that the reform significantly increases corporate environmental investment. Channel analysis shows that this effect works through higher executive environmental attention and lower financing constraints. Heterogeneity analysis further shows that the effect is stronger among non-SOEs, firms located in regions with stronger environmental regulation, and firms in less marketized regions. This study links local debt governance reform to corporate green investment decisions and provides policy implications for improving fiscal governance and promoting corporate green transformation.