Local Government Debt Governance And Corporate Innovation

The work report of the 19 th Party Congress emphasizes that innovation is a key factor of economic growth and an important strategic support to complete the construction of a modern economic system.Under the new normal of development,economic growth is shifting from high-speed growth to high-quality development,and innovation is becoming an important driving force to promote China’s economic restructuring and industrial transformation.In May2021,Xi Jinping proposed at the 19 th meeting of the Central Committee for Comprehensively Deepening Reform that the state should accelerate the reform of the science and technology system,establish a basic system to support comprehensive innovation,and steadily build a new type of state cultivation system under a socialist market economy,so that the state can play an important organizational role in science and technology innovation.Enterprises are the main driving force of innovation in China,and promoting corporate innovation can effectively enhance the national innovation capacity and thus promote high-quality economic development.The 14 th Five-Year Plan has established the central position of science and technology innovation in China and the important role of corporates in China’s science and technology innovation.In recent years,the amount of local government debt in China has increased dramatically,leading to a rise in the cost of debt financing for real companies,a decline in the debt financing capacity of real enterprises,and an increase in the financing constraints of the real economy,which has sharply contradicted the requirements of high-quality development.On January 1,2015,the Budget Law of the People’s Republic of China(hereinafter referred to as the New Budget Law)came into effect,and for the first time,financial information disclosure was included in the legislative system.The New Budget Law clearly stipulates that the budget should be prepared in a more refined manner,with expenditures of the general public budget and governmental fund budget at this level,which are compiled according to the division of functions,and the Standing Committee of the National People’s Congress is responsible for reviewing and approving the allocation and use of external borrowed funds according to the functions......In order to adapt to the implementation of the New Budget Law,the government issued a series of documents such as opinions on the implementation of the management of local government debt Limits,which opened the front door for local governments to issue debt on the one hand,and closed the back door for local financial platforms to raise funds on the other hand,and established a standardized mechanism for in-balance sheet borrowing.With the promulgation of the New Budget Law,China’s local government debt governance is gradually entering a new era,moving from partial and fragmented to comprehensive and systematic.Based on this,this paper uses a difference in difference model to test the impact of local government debt governance on firm innovation using listed firms data from 2013 to 2020,and cities with macro and micro matched data,and the implementation of the Budget Law in 2015 as the time point of policy intervention.The mechanism of the effect of local government debt governance is tested from the perspective of financing constraints and risk-taking,and the heterogeneity of the impact of local government debt governance on corporate innovation is examined in terms of the nature of property rights,corporate regions,and local fiscal transparency.The empirical results show that:(1)Local government debt governance can effectively promote enterprise innovation,and the promotion effect has a long-term effect;(2)Financing constraints play a significant mediating effect in the process of local government debt governance to promote corporate innovation,i.e.,local government debt governance can effectively alleviate the financing difficulties faced by enterprises,thus positively promoting corporate innovation;(3)Risk-taking plays a significant mediating effect in the process of local government debt governance to promote corporate innovation,i.e.,after the problem of local government debt flooding is improved,the willingness of enterprises to take risks is significantly increased,which in turn has a positive effect on corporate innovation;(4)A study based on the difference in the nature of enterprise property rights found that the promotion of local government debt governance on corporate innovation is mainly reflected in non-state enterprises compared to state-owned enterprises;(5)A study based on the differences in the location of enterprises found that the promotion effect of local government debt governance on enterprise innovation was mainly in enterprises located in the western region compared to the eastern region;(6)A study based on fiscal transparency found that the promotion effect of local government debt governance on corporate innovation was mainly found in local municipalities with lower fiscal transparency compared to those in municipalities with higher fiscal transparency.The innovations of this paper are: firstly,this paper studies the relationship between local government debt and corporate innovation from the perspective of governance,which is a useful addition to existing studies on factors affecting corporate innovation;secondly,this paper effectively considers the relevance of policy making and corporate development strategies in China,which is a cutting-edge study on the path of China’s economic development.