Abstract: Liquid assets are an important basis and guarantee for local governments to repay their debts. Then, what is the degree of effect on the solvency of local governments? Through the analysis of the concept of liquid assets and including it into the research framework together with the bond issuing costs, financial situation, local economic development and so on, this paper examines the solvency of local governments’ liquid assets and the degree of its impact. Taking the panel data of 30 provinces of the urban construction investment bonds from 2006 to 2013 as the samples, the results of the study show that the liquid assets of local governments have significant negative impact on the bond issuing costs of the governments. Further study also finds that, compared to the income and expenditure flow information, the asset stock information can better reflect the solvency of local governments. This conclusion can help to standardize the debt management of local governments and debt report reform. It is suggested that the balance sheet of local government liquid assets should be worked out separately, so that it can provide the information users with policy instrument used in decision making when dealing with the stock assets or realizable assets, and it can also provide a basis to evaluate the solvency of local governments.

Key words: local government; urban construction investment bonds; liquid assets; solvency