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The information transfer effect of local government debt on corporate investment

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  • Yang, Yuqi
  • Cheng, Chen

Abstract

We test whether local government debt (LGD) has an information transfer effect on corporate investment. This study find that LGD promotes corporate investment, which we attribute to the information transfer effect in LGD expansion affects firms' economic expectations. This study also observe that the information transfer effect of LGD contributes to the regional economy in the short run. However, it has negatively affected the regional economy in the long term. In contrast to existing literature that examines the crowding-in or crowding-out effect of LGD on firms' investment behavior from a resource allocation perspective, our study considers how LGD influences firms' investment decisions by conveying information about local government development to the market. Furthermore, the paper's conclusions pertaining to the Chinese scenario are generally instructive for other economies undergoing a similar transition.

Suggested Citation

  • Yang, Yuqi & Cheng, Chen, 2026. "The information transfer effect of local government debt on corporate investment," Research in International Business and Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:riibaf:v:87:y:2026:i:c:s0275531926001388
    DOI: 10.1016/j.ribaf.2026.103411
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