Local government debt, financing constraints and firms' green total factor productivity

Abstract

This paper conducts an in-depth examination of the impact of local government debt on firms' green total factor productivity (GTFP) based on data from A-share listed companies in Shanghai and Shenzhen stock markets, as well as local debt information, spanning from 2012 to 2022. It also explores the mechanism through which financing constraints act as a mediating variable. The research finds that local government debt has a more significant negative impact on the GTFP of non-state-owned enterprises, whereas state-owned enterprises, due to their close relationship with the government, are less affected. Further mechanism tests validate the mediating role of financing constraints, indicating that firms facing high financing constraints are more affected by the increase in local government debt, resulting in a significant decline in GTFP. These findings provide valuable insights for policymakers in formulating policies aimed at enhancing firm productivity and sustainability.