Promoting the market-oriented transformation of local government financing vehicles (LGFVs) is an important policy measure to prevent local debt risk and deepen the reform of state-owned enterprises. The local government debt management system reform introduced around 2015 not only optimized the debt structure of local governments but also had a profound impact on the on the operational activities of LGFVs. This paper finds that the reform in management system of local government debt has promoted the market-oriented transformation of LGFVs. After the implementation of the reform, the sensitivity of LGFVs debt financing to government extended assets significantly decreased, while the sensitivity to profitability significantly increased. Mechanism analysis indicates that the reform has weakened the role of LGFVs in financing on behalf of the government by adopting the policy of “open front door” and “block back door”, while significantly reducing the explicit support and implicit guarantees they receive. Further analysis reveals that the degree of market-oriented transformation varies among LGFVs with different shareholder backgrounds, LGFVs with a lower proportion of urban construction projects achieve higher levels of market-oriented transformation, and intense competition helps stimulate the motivation for transformation. The reform also significantly reduced the impact of urban investment on LGFVs investment and increased the sensitivity of LGFVs investments to investment opportunities, significantly enhanced the market orientation of business models, and improved their operational efficiency. This paper not only provides a reference for realizing market-oriented transformation of LGFVs but also offers policy insights for the reform in management system of local government debt.