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Financing the giants: The role of LGFV bonds in labor skill upgrading among big firms

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  • Li, Yuting
  • Wang, Ling

Abstract

This paper examines the impact of local government financing vehicles’ (LGFVs) bond issuance on the labor skill composition of large firms. Using panel data on listed firms, a proxy for large enterprises, we find that LGFV bond expansion significantly upgrades workforce skill structure by easing financing constraints and enabling firms to hire more high-skilled labor. Contrary to the conventional crowding-out concerns, our results suggest a crowding-in effect: listed firms, especially those with greater external financing dependence and stronger reliance on local credit markets, gain improved credit access during periods of LGFV bond expansion. This effect is more pronounced in fiscally stronger regions. Mechanism analysis further shows that LGFV bond issuance reduces financing costs and increases long-term borrowing, which in turn supports firms’ investment in human capital. Overall, the findings reveal a channel through which quasi-fiscal tools indirectly promote structural upgrading in labor markets, primarily by strengthening large firms.

Suggested Citation

  • Li, Yuting & Wang, Ling, 2026. "Financing the giants: The role of LGFV bonds in labor skill upgrading among big firms," Economic Analysis and Policy, Elsevier, vol. 90(C), pages 1267-1278.
    • Handle: RePEc:eee:ecanpo:v:90:y:2026:i:c:p:1267-1278
    DOI: 10.1016/j.eap.2026.02.009
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