The unintended consequence of local government debt: evidence from stock price crash risk

This study examines the impact of local government debt on stock price crash risk. The results show that corporations located in regions with higher levels of local government debt are more likely to have lower future stock price crash risk. This study further finds that a higher intensity of local government debt may crowd out firm-level credit and ultimately improve the quality of corporate information disclosure, which explains the mitigation effect of local government debt. Moreover, the above mitigation effect is more salient when firms are located in regions with a low level of marketization and when firms' financial constraints are high.