Do Privately Owned Enterprises in China Need Political Connections to Issue Corporate Bonds?

73 Pages Posted: 4 Oct 2016 Last revised: 22 Feb 2018

See all articles by Denis Schweizer

Denis Schweizer

Concordia University

Thomas John Walker

Concordia University, Quebec - Department of Finance

Aoran Zhang

Toronto Metropolitan University (formerly Ryerson University)

Date Written: October 15, 2017

Abstract

This paper explores how political connections influence the likelihood of corporate bond issuance for privately owned enterprises (POEs) in China. Using a sample of Chinese POEs from 2007 to 2016, we show that politically connected POEs are more likely to issue corporate bonds as a debt-financing instrument than their non-connected counterparts and that they achieve lower coupon rates (i.e., lower refinancing costs). We also find that corporate bond-issuing POEs in China have weaker corporate governance. Overall, our results suggest that the corporate bond market in China is strongly influenced by political factors.

Keywords: Bank Loans, China, Corporate Bonds, Emerging Markets, Political Connections

JEL Classification: G15, G18, G34

Suggested Citation

Schweizer, Denis and Walker, Thomas John and Zhang, Aoran, Do Privately Owned Enterprises in China Need Political Connections to Issue Corporate Bonds? (October 15, 2017). Available at SSRN: https://ssrn.com/abstract=2846730 or http://dx.doi.org/10.2139/ssrn.2846730

Denis Schweizer (Contact Author)

Concordia University ( email )

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HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

Aoran Zhang

Toronto Metropolitan University (formerly Ryerson University) ( email )

TRS 1-121, Ted Rogers School of Management
55 Dundas St W
Toronto, M5B 2K3
Canada

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