Choice of Corporate Debt in China: The Role of State Ownership

39 Pages Posted: 11 Nov 2011

See all articles by Laurent Weill

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Pierre Pessarossi

French Banking Supervisory Authority - Autorité de Contrôle Prudentiel et de Résolution (ACPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2011

Abstract

We analyze the determinants of debt choices for Chinese firms between bonds and syndicated loans. This issue helps appraise the weak development of bond market in China. We test if flotation costs, asymmetries of information, and renegotiation and liquidation costs influence the choice of debt in line with former studies in the context of regulatory interference in the bond market. We check the role of central state ownership on debt choice in order to assess to what extent corporate debt choices are politically or economically driven. We test these hypotheses on a dataset of 220 listed Chinese firms over the period 2006–2010. We find evidence in favor of the influence of central government ownership on the financing choices of firms it owns, as central state-owned firms are more likely to issue bonds. We also observe limited support for the premise that this influence is stronger for central state-owned firms located closer to the capital. Furthermore, we identify that these companies tend to borrow uniquely on the bond market rather than tapping both debt markets. We provide evidence in favor of the flotation costs hypothesis, but provide mixed evidence for the information asymmetry hypothesis and rather reject the renegotiation and liquidation hypothesis. All in all, our findings show that financial factors play a much more minor role in corporate debt choices compared to other countries, whereas state ownership remain a key determinant of preferring the bond market.

Keywords: corporate bonds, syndicated loans, debt choice, China, state ownership

JEL Classification: G21, P34

Suggested Citation

Weill, Laurent and Pessarossi, Pierre, Choice of Corporate Debt in China: The Role of State Ownership (November 7, 2011). BOFIT Discussion Paper No. 29/2011, Available at SSRN: https://ssrn.com/abstract=1958088 or http://dx.doi.org/10.2139/ssrn.1958088

Laurent Weill (Contact Author)

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

Pierre Pessarossi

French Banking Supervisory Authority - Autorité de Contrôle Prudentiel et de Résolution (ACPR) ( email )

Paris
France

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