Local Government Implicit Debts And Enterprise Investment And Financing Behaviors

At present,one of the main risk factors facing China’s economy is the huge scale of implicit local government debt,which is a long-term,structural and institutional problem of the country’s economic operation.In order to resolve the contradiction between urban development needs and government borrowing restrictions,local governments vigorously utilize financing platforms to play their financing functions,resulting in the accumulation of implicit debts of local governments year by year.The expansion of implicit debt has reduced the accuracy of market regulation and reduced the driving force of high-quality economic development,becoming a "grey rhinoceros" that affects sustainable economic growth in China.From a macro perspective,the disorderly expansion of local government implicit debt will directly affect the efficiency of market resource allocation,and the potential debt risk of local government may trigger systemic risks in serious cases.From the micro level,under the increasingly tight investment and financing environment,the disorderly expansion of local government’s implicit debt is extremely easy to induce serious leverage manipulation and investment and financing term mismatch behavior of enterprises,which has become a constraint for the sustainable and healthy development of microeconomic entities.The negative impact of local government implicit debt on the macro level is actually the result of the accumulation and diffusion of micro effects,so it is urgent to deeply analyze the micro impact mechanism of government implicit debt.What are the obstacles to the high-quality development of the real economy caused by the expansion of the scale of implicit debt of local governments,and where is the starting point for the precise implementation of local government debt risk mitigation policies in the next step? These problems urgently require scientific judgment and practical evidence.Based on the above background,this paper aims at Chinese A-share non-financial listed enterprises and uses the unbalanced panel data from2011-2020 to study the impact of local government implicit debt on the investment and financing behavior of enterprises.On this basis,the heterogeneity analysis is carried out and the following conclusions are drawn: First,the eastern and southern areas of China has larger scale of local government implicit debt and faces greater mitigation pressure.Second,the expansion of the scale of local government implicit debt can significantly increase the leverage manipulation of enterprises and the mismatch of investment and financing terms.As the main carrier of local government implicit debt,financing platforms use their advantages of "soft budget constraints" and "government credit support" to squeeze out credit resources from the real economy,inducing leverage manipulation and short-term lending and long-term investment behavior of enterprises.Third,the expansion of implicit debt of local governments has worsened the financing environment of enterprises,lowered the expectations of enterprises and thus intensified the motivation of enterprise leverage.The continuous expansion of local government’s implicit debt exacerbates the instability of the financial environment,seriously reduces the expectations of enterprises,and makes enterprises have the motivation to leverage to make up for the disadvantages in the financing competition.Fourth,the expansion of local government’s implicit debt reduces the financing ability of enterprises by raising the cost of debt financing and increasing their degree of long-term financing constraints thus promoting the motivation of enterprises for the mismatch of investment and financing terms.Based on the above conclusions,this paper puts forward the following suggestions.The first is to resolve the hidden debt risk with a targeted view,and accelerate the construction of a system arrangement that combines unblocking and incentive compatibility.The second is to accelerate the market-oriented transformation of local government financing platforms and improve the capital operation ability.The third is to strengthen the internal governance effect and reduce the information asymmetry between enterprises and the market.The fourth is to broaden the channels of enterprise equity financing,solve the problem of enterprise financing difficulties caused by the crowding-out effect of implicit debt of local governments.The marginal contribution of this paper is mainly reflected in the following three aspects: First,it provides a new perspective for the study of enterprise investment and financing behavior.Based on the fact that the scale of implicit debt of local governments in China is expanding,this paper provides a new research idea for the investment and financing dilemma faced by enterprises from the perspective of the complex investment and financing behavior of enterprises.Second,more scientific methods are used to measure the scale of implicit debt of prefecture-level and municipal governments.Measuring the scale of local government’s implicit debt using prefecture-level data is not only helpful to analyze the impact of government debt on corporate behavior under the same institutional background,but also helpful to reduce the dependence on time series models.Thirdly,a new path has been proposed for the impact of implicit local government debt on corporate leverage manipulation and mismatched investment and financing terms,highlighting the potential impact of the accumulation of implicit local government debt from a micro perspective.