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Stepping forward with ease: Government debt governance as a catalyst for entrepreneurship

Author

Listed:
  • Cui, Chuantao
  • Yang, Yinhao
  • Gan, Huanhui
  • Dong, Jie

Abstract

This study evaluates the causal effect of government debt on entrepreneurship. Exploiting New Budget Law reform in China that regulates the scale of local government debt, we find that government debt reduction bolsters entrepreneurial ventures by optimizing land utilization and enhancing access to start-up loans. Consistently, the entrepreneurial effect is more pronounced in unregulated industries and downstream sectors. Furthermore, we demonstrate that government debt reduction also contributes to entrepreneurship quality. It induces smaller entrants with higher survival rates post-reform, resulting in more incumbent enterprises exiting. Our results underscore the benefits of encouraging government debt governance experimentation in lowering entry barriers.

Suggested Citation

  • Cui, Chuantao & Yang, Yinhao & Gan, Huanhui & Dong, Jie, 2024. "Stepping forward with ease: Government debt governance as a catalyst for entrepreneurship," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012194
    DOI: 10.1016/j.frl.2024.106190
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    More about this item

    Keywords

    Government debt; Firm entry; Credit allocation; Land utilization; Entrepreneurship;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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