CCER讨论稿:Government Deleveraging and Corporate Distress

发布日期:2022-12-08 10:50    来源:

E2022022                                                         2022-12-08
Jiayin Hu
Songrui Liu
Yang Yao
Zhu Zong

We identify a negative impact of government deleveraging on private firms in a distorted financial market. Our difference-in-differences (DID) analysis exploits hand collected data on local government procurement contracts and China’s top-down deleveraging policy in 2017,which targets shadow bank financing and reduces local governments’ borrowing capacity.We find that after the deleveraging policy, private firms with government contracts experienced larger accounts receivable increases, larger cash holdings reductions, and higher external financing costs than those without government contracts. We also find more sharepledging activities by controlling shareholders, greater likelihoods of ownership changes, and deteriorated performance among these firms, indicating the real impact of financial distress. We do not find similar impacts among state-owned enterprises (SOEs), which enjoy funding privileges in China’s financial system. Our paper thus demonstrates a novel channel of
allocation inefficiencies where government deleveraging amplifies the adverse impact of financial distortions.

Keywords: Deleveraging, shadow banking, local government debt, corporate distress,government procurement, financial distortions
JEL classification: G18, G28, G32, H57, H72, H74