Local government debt and corporate R&D investment: Evidence from China

Published: 26 February 2021| Version 1 | DOI: 10.17632/chv5t9fynt.1
Yuhao Zhou, Shuo Yang


We collect the data to examine the crowding-out effect of local government debt on R&D investment of Chinese corporations. We find that there is a significant negative correlation between local government debt and corporate R&D investment, which indicate that corporations based in provinces with higher government debt are more reluctant to carry out innovation activities. Furthermore, our empirical results show that the crowding-out effect is more pronounced for firms with fewer financing constraints. We initially collect the data of Chinese A-share listed companies in Shanghai and Shenzhen Stock Exchanges and provincial government debt for the years 2012-2017. We match firm data with provincial government debt based on location. Then, we exclude special treatment firms, financial enterprises and firms with missing data. Due to missing data of provincial government debt, we also exclude firms headquartered in Tibet autonomous region. Finally, we have a sample consists of 11417 firm-year observations representing 2483 listed companies in 30 provincial districts in mainland China including 22 provinces, 4 autonomous regions and 4 municipalities directly under the central government. Data analysis was performed with STATA software package.



Corporate Investment, National Debt Management