The Crowding Out Effect of Government Debt on Corporate Debt: Evidence from Vietnam

Abstract

The paper aims to investigate the crowding out effect of government debt on leverage level of listed companies in the Vietnamese stock market during 2000 – 2020. Using panel regression method, the paper shows that an increase in the supply of government debt might result in a crowding out of corporate debt by government debt because available financing sources are shared between government debt and corporate debt. In addition, evidence shows that domestic government debt has a crowding out effect, but external government debt does not. Therefore, we propose that financial managers should consider government debt when making capital structure decisions.