To resolutely curb the disorderly expansion of local government debt and prevent and resolve major economic and financial risks, China has deployed a series of reform measures on local government debt governance. Existing studies mainly focus on the impact of debt governance on the scale and structure of local government debt and the investment and financing behavior of non-financial firms. In the current period, as one of the important sources of systemic risks, what is the relationship between real enterprises and local government debt? Does local government debt governance help to mitigate real enterprises’ systemic risks? Clarifying these questions is of great importance for comprehensively understanding the policy effect of the local government debt governance system reform, deeply understanding the generation and evolution logic of systemic risks in the real economy, and preventing the excessive accumulation of real enterprises’ systemic risks from threatening economic stability and growth.

This paper takes the formal implementation of the new Budget Law in 2015 as a quasi-natural experiment, uses the annual data of China’s non-financial listed firms from 2010 to 2020, adopts the DID model, and empirically examines the impact and its mechanism of local government debt governance on real enterprises’ systemic risks. The results show that local government debt governance effectively reduces the credit mismatch, excessive indebtedness, and leverage manipulation level of real enterprises through the leverage imbalance mechanism and credit correlation mechanism, and significantly weakens the guarantee correlation and credit risk correlation among real enterprises caused by shadow banking and financialization activities, thus effectively alleviating real enterprises’ systemic risks. This effect is more pronounced in regions with strong implicit government guarantees, weak financial supervision, and long-term urban investment debt. Regarding economic consequences, the positive alleviation effect of local government debt governance on real enterprises’ systemic risks is ultimately conducive to promoting the stable growth of enterprise operating performance.

The marginal contributions of this paper are that: First, it broadens the research perspective of systemic risks, and provides feasible ideas and focuses for preventing and resolving major economic and financial risks under the current complex situation. Second, it enriches the research on the microeconomic effect of local government debt governance, and provides supplementary empirical evidence for the efficacy evaluation of the government debt governance system reform. Third, it verifies that the positive alleviation effect of local government debt governance on real enterprises’ systemic risks is ultimately conducive to clearing up the hidden dangers of economic growth caused by preventing and resolving systemic risks.