Government intervention and corporate default risk contagion: An analysis based on a four-party evolutionary game

In today's complex and volatile financial environment, corporate defaults are no longer isolated credit events confined to individual entities. Their risks rapidly propagate through interconnected financial networks, forming Systemic Risk that threatens the entire financial system. Existing research has clearly revealed the contagion chain: "corporate default leads to damage to financial institutions linked to the defaulting firm, which in turn leads to risk transmission to institutions connected to the damaged institutions". It indicates that risks primarily propagate through channels such as interbank lending, asset sales, and cross-shareholdings. However, existing literature tends to focus on empirical analysis and network simulation in methodology, with limited research adopting an evolutionary game theory perspective, particularly lacking in-depth exploration of the aforementioned four-party game dynamics. Additionally, studies generally overlook the government's pivotal role in interrupting risk transmission. Therefore, this paper constructs a four-party evolutionary game model involving the government, enterprises, direct lending financial institutions, and affiliated financial institutions. It focuses on analysing the core role of government intervention in the risk transmission chain, specifically examining whether and how the government can intervene to influence the strategic interactions among these four parties, thereby effectively breaking the vicious cycle of "default-asset impairment-panic contagion". The study finds that establishing penalty mechanisms at the front end of the contagion chain and implementing incentive-compatible intervention policies at intermediate stages can significantly suppress risk transmission. This provides new theoretical foundations and policy implications for preventing and controlling systemic financial risks.