Does local government debt regulation improve rural banks' performance? Evidence from China

This study offers a new approach to measure the intensity of local government debt regulations using textual analysis. Based on a sample of 71 rural banks in 21 Chinese provinces from 2013 to 2019, we investigate the impact of the number and proportion of keywords in local debt-related documents on rural banks' performance. Results show that an increase in debt regulation improves banks' performance by reducing local government debt. Moreover, an increase in the proportion of government shareholdings in rural banks as well as fiscal pressure weaken this impact; an increase in economic development pressure strengthens this impact.