Research on the lmpact of Local Government Debt Swap on Corporate Debt Default Risk
CHEN Chuanglian, WU Anbing, ZHU Ying, SUN Chuanwang
Institute of Finance/Department of Finance/Southern China Institute of Finance, Jinan University; School of Economics/LDSFE, Jiangxi University of Finance and Economics; School of Finance, Guangdong University of Finance and Economics; School of Economics/Southeast China Sea Governance Laboratorg, Xiamen University
Summary:
The ongoing buildup of local government hidden debt not only ramps up fiscal and financial risks but also affects the financing environment for individual firms by squeezing credit resources and distorting interest rates. This paper constructs a three-stage sequential game model including local governments, commercial banks, and non-financial firms, analyzing the issue from two angles: “policy effect” (whether to swap debt) and “scale effect” (how much to swap), explaining theoretically how local government debt swaps impact corporate default risk. The model shows that, through the policy signal channel, debt swaps exogenously reduce local governments’ default probabilities, lower regional financial risk premiums, and improve expectations for bank asset quality. At the same time, the scale of swaps changes bank balance sheets, creating two opposing forces: “repair of the balance sheet” and “compression of asset returns”. These forces dynamically evolve with the swap scale and jointly determine the ultimate risk effect of the policy. Based on this, using data from non-financial firms listed on the Shanghai and Shenzhen stock exchanges from 2010 to 2023, this paper treats the 2015 local government debt swap as a quasi-natural experiment and applies a multi-period difference-in-differences (DID) approach for empirical testing. Empirical research has found that local government debt swaps significantly reduce corporate debt default risk. This conclusion holds even after parallel trend tests, PSM-DID tests, variable replacements, instrumental variable methods, and placebo tests. Mechanism analysis indicates that debt swaps mainly work through two channels: lowering regional financial risk premiums and improving bank asset quality. In areas with high local debt risk, weak corporate repayment capacity, and low bank risk-taking, the policy’s risk mitigation effect is more pronounced. Heterogeneity analysis shows that non-state-owned enterprises, small and medium-sized enterprises, high leverage and high gold melting enterprises benefit more significantly due to their tighter financing constraints. After replacing the pressure drop risk premium, the marginal financing cost decreases more, and the relief effect is prominent; Regions with high marketization and high fiscal capacity, due to sufficient financial competition, solid government credit, smoother credit restructuring, and stronger risk mitigation effects of trade in policies on their affiliated enterprises. Further research finds a robust U-shaped relationship between swap scale and corporate default risk: moderate swaps mitigate risk by expanding bank credit volume, but beyond a certain threshold, low-interest swap bonds continuously squeeze bank asset yields, leading to increased credit pricing and reduced supply, with the marginal risk mitigation effect declining or even reversing. The interaction of swap scale with bank credit volume and pricing is significantly positive, confirming that the scale effect is transmitted through both credit “quantity” and “price” channels as expected. This paper puts forward the following policy recommendations. First, fully recognize the positive role of debt swaps in mitigating systemic financial risks and maintain the continuity and stability of debt-reduction policies. Second, scientifically estimate the optimal range of swap volumes for each province and reasonably plan the issuance pace to avoid short-term concentrated swaps putting pressure on bank credit supply. Third, remove key bottlenecks in policy transmission and guide commercial banks to allocate the released credit resources effectively to the real economy, especially favoring non-state-owned enterprises and highly leveraged companies that benefit more. Fourth, implement differentiated regional debt strategies, pairing fiscally weaker areas with central transfer payments and provincial coordination measures to strengthen the credit basis for effective policy transmission. This paper provides an important reference for decision-making in optimizing debt-reduction policy design and achieving both risk mitigation and resource allocation optimization.
陈创练, 吴安兵, 朱莹, 孙传旺. 地方政府债务置换对企业债务违约风险的影响研究[J]. 金融研究, 2026, 555(9): 1-19.
CHEN Chuanglian, WU Anbing, ZHU Ying, SUN Chuanwang. Research on the lmpact of Local Government Debt Swap on Corporate Debt Default Risk. Journal of Financial Research, 2026, 555(9): 1-19.
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