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The hidden crowding out effect: How does local government implicit debt pressure influence enterprise productivity in China?

Author

Listed:
  • Lei Wang
  • Chuncao Wang
  • Jiayi Chen
  • Jingke Chang

Abstract

To explore whether and how local government implicit debts pressure (LGIDP) affects the firm performance, this paper bases on the 2012–2018 listed enterprise data and local government financing vehicles (LGFVs) data to empirically test the impact of LGIDP on the total factor productivity (TFP) of non‐local government financing vehicles (N‐LGFVs). The results show that LGIDP significantly reduced the TFP of N‐LGFVs by transferring fiscal resources, enhancing tax collection, and transferring credit resources. But this distorting effect of LGIDP on the TFP of N‐LGFVs only exists in non‐state‐owned enterprises, small‐scale enterprises, and young enterprises. Our paper has an important policy recommendation that regulating LGFVs and alleviating LGIDP are of great significance for China to achieve sustained economic growth.

Suggested Citation

  • Lei Wang & Chuncao Wang & Jiayi Chen & Jingke Chang, 2025. "The hidden crowding out effect: How does local government implicit debt pressure influence enterprise productivity in China?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(1), pages 502-514, January.
    • Handle: RePEc:wly:mgtdec:v:46:y:2025:i:1:p:502-514
    DOI: 10.1002/mde.4387
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