Subnational debt of China: The politics-finance nexus

• 成果类型: Article
• 署名作者: Gao, Haoyu; Ru, Hong; Tang, Dragon Yongjun
• 署名单位: University of Hong Kong; Renmin University of China; Nanyang Technological University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.05.028
• 发表日期: 2021
• 页码: 881-895
• 关键词: Government debt; Selective default; Politics-finance nexus; Career concern

摘要

We provide direct evidence that governments selectively default on debt when they can identify creditors. Analyzing a comprehensive data set of subnational debt, we show that Chinese local governments choose to default on banks with weaker political power. A re-duction in a bank's political power relative to other banks increases the likelihood of se-lective default by local governments. Such default selections are driven by banks' influence over politician promotion. When local politicians are highly ranked or connected to na-tional leaders, they engage less in selective default as their promotion is less affected by bank loan defaults. Our findings suggest a politics-finance nexus through which govern-ment defaults are restrained. (c) 2021 Elsevier B.V. All rights reserved.