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Implications of Government Borrowing for Corporate Financing in Emerging Economies: A Crowding Out Kuznets Curve

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  • Muhammad Ali Nasir

    (Leeds Beckett University, United Kingdom, Leeds, LS1 3HB, UK2School of Banking, University of Economics Ho Chi Minh City (UEH), Vietnam)

  • Toan Luu Duc Huynh

    (School of Banking, University of Economics Ho Chi Minh (UEH), Vietnam, Ho Chi Minh City, Vietnam)

  • Quynh Thi Nhu Do

    (Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam)

  • Cuc Thi Nguyen

    (Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam)

  • Quynh Thi Tran

    (Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam)

Abstract

This paper investigates the implications of government borrowing for corporate financing and capital structure of the firms. In doing so, we explore the effects of government debt, macroeconomic and firm-specific factors on firm’s choice of financing and capital structure. We draw on the 10-year data (2007–2017) of 225 non-financial firms listed on the Ho Chi Minh Stock Exchange (HoSE) and employ the system Generalized Method of Moments (system-GMM) for estimation. Our key findings suggest that the government borrowing and debt financing for the Vietnamese listed companies have a negative relationship. Specifically, the short-term corporate leverage structure is influenced more strongly than the long-term leverage structure. We also define the threshold for the association between government borrowing and corporate financing decisions by capturing a U-shaped relationship i.e., Crowding out Kuznets Curve (CKC). Furthermore, macroeconomic factors also show a statistically significant impact on corporate financing decisions. Our findings have profound implications for the fiscal and public policymakers, investors as well as corporate finance managers and firms.

Suggested Citation

  • Muhammad Ali Nasir & Toan Luu Duc Huynh & Quynh Thi Nhu Do & Cuc Thi Nguyen & Quynh Thi Tran, 2020. "Implications of Government Borrowing for Corporate Financing in Emerging Economies: A Crowding Out Kuznets Curve," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 1-27, June.
    • Handle: RePEc:wsi:rpbfmp:v:23:y:2020:i:02:n:s0219091520500174
    DOI: 10.1142/S0219091520500174
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    Citations

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    Cited by:

    1. Sadiq, Misbah & Yousaf, Sheikh Usman & Anser, Muhammad Khalid & Rashid Khan, Haroon ur & Sriyanto, Sriyanto & Zaman, Khalid & Van Tu, Duong & Anis, Siti Nisrin Mohd, 2023. "The role of debt financing in the relationship between capital structure, firm’s value, and macroeconomic factors: To throw caution to the wind," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 212-223.
    2. Martínez-Navarro, Diego & Amate-Fortes, Ignacio & Guarnido-Rueda, Almudena & Oliver-Márquez, Francisco J., 2022. "Institutional Kuznets curve? An empirical analysis with panel data," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 35-39.
    3. Subhan Ullah & Di Sun, 2021. "Corporate social responsibility corporate innovation: A cross‐country study of developing countries," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(3), pages 1066-1077, May.

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