Abstract: Preventing financial risks of listed companies is crucial for the stable and healthy development of the capital market. By using the quarterly data from Chinese A-share listed companies from 2014 to 2017, this paper constructs a multi temporal DID model to study the impact of large-scale government stock purchases on corporate financial risk. Research has found that large-scale government stock purchases can reduce financial risks for businesses. The mechanism testing shows that large-scale government stock purchases can play a governance role for institutional investors and improve the investment efficiency of enterprises. Therefore, large-scale government stock purchases can reduce the financial risks of enterprises. The heterogeneity analysis reveals that the government’s large-scale purchase of stocks has a more significant effect on reducing corporate financial risks in companies with low information transparency, as well as in companies with long-term holdings of Huijin Corporation. Therefore, when formulating rescue policies, the government should incorporate the prevention and control of corporate financial risks into the policy objective system. The executing entity of government stock purchases should deeply participate in corporate governance, and promote the allocation of enterprise resources towards core businesses and efficient projects.

Key words: government large-scale stock purchases, corporate financial risks, government bailout