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Using the first-round local government debt replacement policy (LGDR) implemented in 248 Chinese cities from 2015 to 2018 as a quasi-natural experiment, this article employs an intensity DID model to investigate the impact of LGDR on corporate financing constraints. The empirical results show that LGDR significantly alleviates firms’ financing constraints. Mechanism analysis reveals that LGDR can enhance corporate credit availability by improving commercial bank liquidity, and reduce corporate financing costs by mitigating firms’ operational risks and intensifying regional banking competition. Heterogeneity analysis further indicates that the alleviating effect is more pronounced for non-state-owned enterprises, labour-intensive firms, technology-intensive firms, and firms operating in competitive industries. This study contributes to the literature by providing micro-level evidence on the economic effects of local government debt risk mitigation tools and offers new empirical insights into addressing corporate financing difficulties.
Wang et al. (Thu,) studied this question.
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