The impact of local government debt on leverage adjustment speed: evidence from a quasi-natural experiment of local governmental debt governance reform
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Overview
Quasi-natural experiment reveals local debt reform accelerates corporate leverage adjustment speed in Chinese firms, indicating reduced debt imbalance between state and private enterprises.
Key Points
To examine how China's 2014 local government debt governance reform affects corporate leverage adjustment speed and whether it mitigates capital structure imbalances between state-owned and private firms.
Designed a quasi-natural experiment leveraging China's 2014 local government debt governance reform.
Conducted empirical regressions alongside heterogeneity and mechanism analyses evaluating firm risk, bank relationship costs, implicit debt levels, and local bond issuance.
The 2014 debt governance reform accelerated corporate leverage adjustment speed primarily by decreasing firm-level risk and bank relationship costs.
The speed acceleration was more pronounced in regions with higher levels of implicit local government debt and greater new local bond issuance.
The reform successfully alleviated the corporate debt structural disparity between state-owned enterprises and non-state-owned enterprises.