The impact of local government fiscal transparency on corporate financing costs: evidence from China

Fiscal transparency is widely regarded as an important component of government governance, yet its implications for firms’ financing conditions remain underexplored, particularly at the micro level. Using a panel of 22,715 firm-year observations of Chinese A-share listed firms from 2013 to 2022, this study examines the effect of local government fiscal transparency on corporate debt financing costs. We employ a two-way fixed effects panel regression framework, combining firm-level financial data from CSMAR and CNRDS with city-level fiscal transparency measures compiled by Tsinghua University. The results show that greater fiscal transparency significantly reduces firms’ cost of debt. Economically, a one – standard deviation increase in fiscal transparency is associated with a decline in borrowing costs of approximately 0.22% points, equivalent to about 3.8% of the sample mean. Mechanism analyses indicate that this effect operates through improvements in both external and internal information environments. The financing cost reduction is more pronounced for firms receiving higher levels of government subsidies or tax incentives. Overall, this study provides novel firm-level evidence that fiscal information disclosure serves as an important macro-institutional determinant of corporate financing outcomes.