Local Government Debt Expansion and Corporate Trade Credit Supply

Abstract

Abstract: This paper empirically examines the impact of government debt expansion on corporate trade credit supply and its underlying mechanisms based on hand-collected and compiled comprehensive data on local government debt and financial data of non-financial listed companies on the Shanghai and Shenzhen stock exchanges from 2007 to 2019. The findings show that government debt expansion has a significant inhibitory effect on corporate trade credit supply, and the effect is more pronounced in enterprises that are non-state-owned, small-scaled, and exposed to less industry competition. The mechanism test reveals that the expansion of government debt scale aggravates the financing constraints, operational risks, and tax burdens of enterprises, thereby reducing their trade credit supply. Further research shows that government debt expansion shortens the supply period of trade credit and lowers its quality. This study provides reference and guidance for strengthening government debt governance and preventing systemic financial risks.

Key words: local government debt expansion, corporate trade credit supply, financing constraints, operating risk, tax burden

Wu Yuhui, Mo Yifan. Local Government Debt Expansion and Corporate Trade Credit Supply[J]. Management Review, 2025, 37(3): 3-16.

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