The Crowd-Out Effect of Government Debt on Firm Leverage

Abstract

Based on the data of 21 provinces from 2000 to 2018, this paper empirically examines the impact of government debt on corporate financing decisions, and finds that there is a negative correlation between government debt and corporate leverage. In large enterprises, private enterprises and enterprises in economically developed areas, the negative relationship is stronger. In order to deal with the potential endogenous problems, we use the government debt excluding the province GDP as the instrumental variable, and take the financial crisis and the 4 trillion policy as the division point to divide two periods of time as the robustness test. The results show that government debt crowds out corporate debt.