Local government debt and corporate asset-debt maturity mismatches: Evidence from China

Abstract

In the context of the rapid accumulation of public debt inducing tightened credit supply for firms in China, this paper empirically estimates the effects of local government debt on corporate financing and investment maturity decisions. We find that the increasing local government debt significantly intensifies corporate asset-debt maturity mismatches. Mechanism tests conducted from both the demand and supply side of credit resources indicate that local government debt will enhance corporate maturity mismatches by decreasing firms' availability to long-term credit and increasing the cost of debt financing. Heterogeneity analyses show that the positive relation between government debt and corporate asset-debt maturity mismatches is more pronounced in non-state-owned firms, firms with smaller sizes, higher growth rates, and higher R&D intensity. This study highlights the crucial role of public debt in shaping corporate financing maturity policy and provides important implications for government debt governance reform.