Local Debt And Corporate Leverage Manipulation

Since the global financial crisis in 2008,the scale of local government debt has continued to expand,especially in large developing countries such as China.At the same time,some scholars have found that corporate leverage has also declined.Based on the data of non-financial listed companies in China from 2006 to 2015,this article empirically examines the impact of local government debt expansion on corporate leverage in China.The results show that the expansion of local government debt has a crowding out effect on enterprises,which means that the increase in local government debt will lead to an increase in the financing costs of enterprises and a certain degree of crowding out,leading to the implementation of leverage manipulation by enterprises.In addition,the results also show that for non-state enterprises,the expansion of local government debt has a greater impact on corporate leverage than for state-owned enterprises.In order to avoid bias in the research results,this paper considers the endogenous problem and conducts a series of robustness tests.The results show that the conclusion of this debt crowding out effect is still valid in these tests.This means that the impact of local government debt on corporate leverage does exist,and is not caused by the interference of other variables.At the same time,this article analyzes the heterogeneity of the mechanism of the expansion of local government debt on corporate leverage from multiple perspectives such as property rights,financing constraints,industrial policies,soft budget constraints,and debt structure.The results show that the expansion of local government debt has a crowding out effect on the enterprise industry,which affects corporate leverage in non-state owned enterprises with strong financing constraints,The soft budget constraints are weaker and the debt structure is more dependent on bank loans.The research in this article indicates that the crowding out effect of local government debt on enterprises has certain significance for promoting the healthy development of local governments,improving the financing environment of enterprises,and promoting economic development.Policymakers should take this into account and more carefully consider the impact of the growth of local government debt on the corporate sector when formulating relevant policies.At the same time,enterprises themselves should also properly manage their leverage ratios,avoid excessive reliance on debt financing,and strengthen their financial sustainability to cope with an unstable external environment.