Debt Governance Spillovers: How Local Government Financing affects Enterprise Green Transformation

Abstract

This study conducts quasi-natural experiment based on local government debt governance launched in China in 2015. Employing a progressive difference-in-differences (DID) approach, this study matches data from Chinese-listed enterprises from 2010 to 2019 to evaluate the effect of the local government debt governance on enterprise green transformation. Findings indicate that debt governance significantly promotes the green transformation of enterprises. This conclusion remains robust after multiple robustness tests. Mechanism analysis reveals that debt governance enables the green transformation of enterprises by alleviating overcapacity. Heterogeneity analysis shows that debt governance significantly promotes the green transformation of enterprises in cities with advanced industrial structures, environmental priorities, non-resource-based economies, and among non-state-owned and technology-intensive enterprises. This study offers valuable insights for countries managing public debt while promoting green transformation among enterprises.