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Expansion of local government debt and stock price crash risk: Evidence from China

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Listed:
  • Li, Feifei
  • Xue, Ruile
  • Du, Mingyue
  • Yang, Yang

Abstract

In recent years, the burgeoning debt of local governments has become a significant threat to the stability of financial markets. Focusing on the micro-perspective of stock price crash risk, this paper utilizes data from China’s A-share listed companies and local government debt (LGD) from 2009 to 2023 to explore the impact of LGD expansion on stock price crash risk (SPCR) and its underlying mechanisms. Results find that larger LGD scales are associated with higher SPCR for local enterprises; LGD expansion exacerbates these risks by intensifying corporate financing constraints and promoting corporate financialization. The effects of LGD expansion on SPCR are primarily observed in non-state-owned enterprises, firms with poor internal controls, and regions with low levels of marketization and financial development. Adjusting debt structure can mitigate the enhancing effect of LGD size on SPCR.

Suggested Citation

  • Li, Feifei & Xue, Ruile & Du, Mingyue & Yang, Yang, 2026. "Expansion of local government debt and stock price crash risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:riibaf:v:87:y:2026:i:c:s0275531926001285
    DOI: 10.1016/j.ribaf.2026.103401
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