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The unintended consequence of local government debt: evidence from stock price crash risk

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  • Huang, Shuo

Abstract

This study examines the impact of local government debt on stock price crash risk. The results show that corporations located in regions with higher levels of local government debt are more likely to have lower future stock price crash risk. This study further finds that a higher intensity of local government debt may crowd out firm-level credit and ultimately improve the quality of corporate information disclosure, which explains the mitigation effect of local government debt. Moreover, the above mitigation effect is more salient when firms are located in regions with a low level of marketization and when firms’ financial constraints are high.

Suggested Citation

  • Huang, Shuo, 2022. "The unintended consequence of local government debt: evidence from stock price crash risk," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004792
    DOI: 10.1016/j.frl.2022.103296
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    References listed on IDEAS

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    Cited by:

    1. Peng, Pin & Lin, Gaoyi, 2024. "Local government debt and corporate tax avoidance: Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    2. Dong, Xiaojun & Yu, Xiaowen & Shi, Tao & Qiao, Dan, 2024. "Nexus between carbon emissions and local debt risk: Evidence from China's prefecture-level cities," International Review of Financial Analysis, Elsevier, vol. 93(C).
    3. Xiong, Jiacai & Huang, Ling & Yang, Zelin & Wang, Xin, 2024. "The impact of local government debt on entrepreneurship: Evidence from a quasi-natural experiment of local debt governance reform," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 501-519.
    4. Xu, Lingling & Huang, Xiaodi & Liu, Guanchun & Liu, Yuanyuan, 2023. "Tax authority enforcement and stock price crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 55(PA).
    5. Wen, Fenghua & Lin, Diyue & Hu, Lei & He, Shaoyi & Cao, Zhiling, 2023. "The spillover effect of corporate frauds and stock price crash risk," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Local Government Debt; Stock Price Crash Risk; Corporate Information Disclosure;
    All these keywords.

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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