The impact of local government debt governance on cross-regional investment

This study investigates whether the restructuring of local government debt governance in 2015 altered corporate cross-regional investment behavior. We show that strengthened local government debt governance significantly promotes corporate cross-regional investment. Further analysis indicates that this effect is more pronounced in regions facing greater fiscal pressure and higher economic growth targets, as well as among firms with more severe financing constraints. Evidence on transmission mechanisms reveals that local government debt governance facilitates firms’ cross-regional expansion by easing financing constraints and enhancing total factor productivity (TFP). This study extends the literature on the microeconomic consequences of local government debt governance and offers a new perspective for understanding corporate cross-regional investment. More broadly, the results underscore the importance of institutional design in shaping capital allocation efficiency and facilitating corporate cross-regional investment.