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Can local government implicit debt raise regional financial market spillover? Evidence from China

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Listed:
  • Yang, Xin
  • Wang, Xuya
  • Cao, Jie
  • Song, Linjia
  • Huang, Chuangxia

Abstract

This paper investigates how local government implicit debt influences regional financial market spillovers. Utilizing the volatility spillover network of Diebold and Yilmaz (2014), we demonstrate that financial distress stemming from implicit debt can trigger regional financial market spillovers. Further analysis reveals that credit expansion amplifies the impact of local government implicit debt on cross-province volatility spillovers, while an improved financial situation lessens this impact. Moreover, this effect is more prominent in provinces with a higher foreign trade dependency and greater industrial structural change.

Suggested Citation

  • Yang, Xin & Wang, Xuya & Cao, Jie & Song, Linjia & Huang, Chuangxia, 2024. "Can local government implicit debt raise regional financial market spillover? Evidence from China," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324009036
    DOI: 10.1016/j.frl.2024.105873
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