Exploring the Influence of Local Government Debt on Enterprise Investment through the Empirical Evidence at the Municipal Level

Abstract

The data of new urban investment bonds in cities from 2011 to 2021 to represent the growth of local government debt is used in this article. This paper studies the relationship between the increase of local government debt and the underinvestment of A-share listed enterprises, which are nonfinancial companies in China. The research finds that the increase in local government debt will crowd out the debt financing of enterprises and then significantly the degree of underinvestment of enterprises, which is represented non-state-owned enterprises, enterprises with high financing constraints, and enterprises with nonlocal debt invested in the industry. As for listed enterprises with relatively low fixed assets, the increase in local debt will further lead to the degree of underinvestment. The above conclusions remain unchanged after a series of robustness tests in this paper. Further research shows that the increase in local government debt will weaken the stimulus effect of loose monetary policy and thus affect the underinvestment of enterprises. This paper expands the research on the factors affecting the underinvestment of enterprises and deepens the research on the consequences of the influence of local government debt on the economic activities of microsubjects.