Regional High Debt Risk and Enterprise Innovation

Local governments have a significant impact on business activities and enterprises behavior. This paper selects the data of A-share listed companies and uses panel data regression analysis model to test the mechanism of regional high debt risk inhibiting innovation. The research findings are as follows: First, the expansion of local government debt restricts enterprises' investment in innovation and research and inhibits their innovation ability by improving corporate financing constraints, reducing government subsidies and tax incentives. Excessive local debt may lead to lower credit ratings, higher interest rates, limited financing channels, and thus crowding out corporate financing. In this case, enterprises may be forced to reduce R&D-related investment. As a result, local government debt inhibits firms' ability to innovate through financing constraints..Second, the mixed ownership reform and strategic differentiation can help enterprises to reverse their disadvantages and increase innovation and R&D investment. Mixed reform can reduce the policy burden of enterprises and reduce government intervention so that enterprises can focus more on innovation activities. Strategic differentiation leads to continuous learning and improvement process, and it will stimulate the innovation vitality of enterprises and achieve the growth of innovation performance.