Implications of Government Borrowing for Corporate Financing in Emerging Economies: A Crowding Out Kuznets Curve

Muhammad Ali Nasir, Toan Luu Duc Huynh, Quynh Thi Nhu Do, Cuc Thi Nguyen, Quynh Thi Tran

Research output: Contribution to journalArticle

Abstract

This paper investigates the implications of government borrowing for corporate financing and capital structure of the firms. In doing so, we explore the effects of government debt, macroeconomic and firm-specific factors on firm’s choice of financing and capital structure. We draw on the 10-year data (2007–2017) of 225 non financial firms listed on the Ho Chi Minh Stock Exchange (HoSE) and employ the system Generalized Method of Moments (system-GMM) for estimation. Our
key findings suggest that the government borrowing and debt financing for the Vietnamese listed companies have a negative relationship. Specifically, the short term corporate leverage structure is influenced more strongly than the long-term leverage structure. We also define the threshold for the association between government borrowing and corporate financing decisions by capturing a U-shaped relationship i.e., Crowding out Kuznets Curve (CKC). Furthermore, macroeconomic
factors also show a statistically significant impact on corporate financing decisions. Our findings have profound implications for the fiscal and public policymakers, investors as well as corporate finance managers and firms.
Original languageEnglish
Article number2050017
Number of pages27
JournalReview of Pacific Basin Financial Markets and Policies
Volume23
Issue number2
DOIs
Publication statusPublished - 15 Jun 2020
Externally publishedYes

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