Over-Leverage Risk Taking and the Belt and Road Initiative

Abstract

Using data of 120 Chinese securities companies from 2008 to 2019, we investigate the mechanisms and financial risk of Chinese financial agencies involved in the bond issuance of the Belt and Road Initiative (BRI). We find that the BRI reshapes regions’ investment patterns and incents bond issuance. A security company may take an over-leverage risk by acting as an underwriter of bonds, since trading financial debts will increase the debit side of its accounts. Additional analysis suggests that the effect of the BRI on the over-leverage of local securities companies is more significant than the effect on state-owned securities companies. Both the company scale and growth capability could reduce the effect of the BRI on the over-leverage risk.

Keywords: Belt and road initiative, Bond issuance, Over-leverage, Financial risks