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Facilitating or crowding out? The role of local government debt in green bond issuance

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  • Zia, Sidra
  • Song, Lin
  • Alkebsee, Radwan
  • Alhebri, Adeeb

Abstract

Using a sample of 35,790 year-firm observations from China from 2015 to 2023, we examine the dual impact of local government debt (LGD) on the issuance of corporate green bonds. The literature documents that LGD crowds out private financial credit, negating both impacts. Drawing on signaling and crowding-out theory, our analyses of panel data reveal that LGD promotes green financing in the short run by signaling policy support and improving credit conditions, but excessive LGD over time crowds out private green investment in the long run. We also identify capital expenditure as a key transmission channel for LGD’s dual roles. The main results remain consistent in several endogeneity tests. These findings highlight the importance of aligning debt management with sustainability goals.

Suggested Citation

  • Zia, Sidra & Song, Lin & Alkebsee, Radwan & Alhebri, Adeeb, 2026. "Facilitating or crowding out? The role of local government debt in green bond issuance," Finance Research Letters, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finlet:v:92:y:2026:i:c:s1544612326001364
    DOI: 10.1016/j.frl.2026.109605
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