Local Government Debt And Enterprise Short-term Loan Long-term Investment

The 19th Party Congress report clearly proposed to "improve the financial supervision system and guard the bottom line of not occurring systemic financial risks".At this stage,China’s economic development is facing a serious and complex environment at home and abroad,and the Party Central Committee clearly requires effective control of key risks,of which the active and steady handling of local government debt risks and the prevention and resolution of corporate black swan and gray rhinoceros crises are particularly important parts.Looking back at the development of China’s capital market in recent years,bankruptcies caused by corporate debt problems have been frequent,and the mismatch of investment and financing maturities of Chinese enterprises has been gradually exposed.Academics have begun to pay attention to the trend of short-termization of corporate debt and to explore the financial alienation behavior of short loans and long investments.In fact,local government debt,as a government financing tool,is bound to have a significant impact on corporate investment and financing behavior by influencing the behavior of financial intermediaries and the economic environment in the region.Based on this,this paper incorporates government debt risk and corporate investment and financing mismatch risk into a unified analysis framework based on local government debt expansion and corporate short term lending and long term investment behavior,and verifies the intrinsic connection between local debt as a government behavior and short term lending and long term investment as a micro corporate behavior.This paper selects A-share listed companies from 2010-2020 as the sample,constructs the corporate short loan and long investment equation,and empirically tests the intrinsic relationship between local government debt expansion and corporate short loan and long investment behavior.In the intermediation effect test,this paper analyzes the specific ways in which the external environment affects corporate financing behavior from the perspective of financing constraints,and analyzes the mechanism of the role between local government debt and corporate short loans and long investments.The paper then discusses the differential effects of heterogeneous factors such as firm size,nature of property rights,managerial overconfidence,firm transparency,and regional marketization,and examines the related economic consequences in terms of two dimensions:firm market capitalization and business risk.The study finds that local government debt expansion can significantly increase firms’short-loan and long-investment behavior.Local government debt worsens the financing environment of enterprises by crowding out bank credit space and dissipating rental value,induces banks to be "lending-averse,lending-abstracting,and lending-short",reduces the availability of long-term credit resources for enterprises,and induces maturity mismatch between enterprises’ investment and financing.This relationship is more pronounced in small-scale,non-state enterprises,enterprises with overconfident managers and low transparency,as well as in regions with slow marketization,poorly developed intermediary organizations and laws,and less developed factor markets.This paper also finds that financing constraints play a mediating role in the promotion of local government debt expansion on enterprises’ short loan and long investment behavior,i.e.,the rising scale of local government debt exacerbates enterprises’ financing constraints,and enterprises are forced to support long-term investment activities with short-term funds,resulting in the phenomenon of short loan and long investment.The analysis of the economic consequences shows that the expansion of local government debt leads to short loans and long investments,which damages the market value of enterprises and increases their business risks.This paper uses the classical theories of maturity matching theory,crowding out effect theory and financing constraint theory for logical derivation,and explores the mechanism of the effect of local government debt expansion on enterprise short loans and long investments from the perspective of financing constraint effect,breaking the black box of the effect from local government debt risk to enterprise business risk.This study provides insights for the government to build a perfect market financing supervision system,promote supply-side structural reform and reduce local government debt risk,and also provides constructive ideas for enterprises to optimize investment and financing term allocation,increase corporate transparency and break local government debt risk from the inside out.