Reform of Local Debt Management Systems and Upgrading of Enterprise Human Capital: Theory and Mechanism
LI Yifei, LI Jing, CHU Erming
Management World Magazine; School of International Trade and Economics, University of International Business and Economics; School of Business, Xiangtan University
Summary:
High-quality human capital is essential for enterprises to produce final products and conduct research and development (R&D) activities. Its knowledge spillover attributes and complementary capital skills can break through the constraints of diminishing marginal returns on material capital, promote technological progress and labor productivity, and ultimately become the driving force of a country's economic growth. Human capital investment is often time-consuming and involves high risks in actual production activities. Enterprises need to pay competitive salaries to attract and retain high-quality employees, and must bear high investment and training costs to improve employees' skills and abilities and ultimately form high-quality human capital. Therefore, funding, especially long-term funding support, is needed. However, due to the objective environment of financial repression in China, enterprises are often limited to indirect financing through bank credit channels. Moreover, the requirement that “local governments shall not issue government bonds unless otherwise provided by law and the State Council” under the 1995 Budget Law of the People's Republic of China means that local governments generally rely on financing platform companies, local governments, and local governments to raise capital. In general, with the help of financing platform companies, local government departments and institutions raise debts “in disguise” and obtain a large amount of high-quality bank credit by mortgaging assets such as land and providing guarantees to support public projects and investment in infrastructure construction and similar projects, which have a significant demand for funds and a long recovery cycle. This produces a crowding-out effect on enterprise financing, especially long-term financing, and exacerbates enterprises' difficulties in obtaining financing. Since 2015 and the implementation of local government debt management system reform, a combination of blocking and easing access to finance has been adopted. On the one hand, the law gives local governments the authority to issue local government bonds and allows them to simultaneously carry out debt replacement in accordance with the requirements of budgetary management to reduce the burden of interest on the outstanding debt. On the other hand, the reform clarifies the responsibilities of the government and enterprises and removes the function of government financing using financing platform companies, while simultaneously requiring that local governments do not provide guarantees. The central government implements the no bailout principle to strengthen the hard budget constraint. As a result, the local government debt situation is one of “opening the front door and blocking the back door,” which is likely to reduce the financing pressure on enterprises relying on bank credit financing. In view of this context, and based on the objective fact that the local government debt management system reform has gradually been promoted nationwide since 2015, this article constructs a quasi-natural experiment, selects A-share listed companies in Shanghai and Shenzhen for the period from 2012 to 2020 as the research object, and uses the staggered difference-in-difference method to systematically examine the impact of local government debt governance on the upgrading of corporate human capital and the underlying mechanism. The findings show that the reform of the local government debt management system substantially contributes to the upgrading of firms' human capital by increasing the size of their debt, lengthening the maturity of firms' debt financing, and pushing firms to increase their investment in fixed assets and R&D, and that these effects are not symmetric across different industries and firm characteristics. Further analysis confirms that firms' operating efficiency, size, employee wage levels, and patent output also increase significantly. Nevertheless, neither the share of firms' labor income nor the quality of their patents is seriously affected. This paper enriches the empirical research on the microeconomic effects of the reform of the local government debt management system, providing a feasible explanation for the blocked human capital upgrading channels of Chinese enterprises, as well as a reference for the effective promotion of local government debt governance and the implementation of the innovation-driven development strategy. Future related research worth exploring includes the impact of the local debt management system reform on market behavior and the competitive environment of enterprises, and research on related policies that need to be supported in the transformation and upgrading of different types of regions and at the enterprise level.
李逸飞, 李静, 楚尔鸣. 地方债管理体制改革与企业人力资本升级:理论与机制[J]. 金融研究, 2023, 519(9): 131-149.
LI Yifei, LI Jing, CHU Erming. Reform of Local Debt Management Systems and Upgrading of Enterprise Human Capital: Theory and Mechanism. Journal of Financial Research, 2023, 519(9): 131-149.
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