Do Privately Owned Enterprises in China Need Political Connections to Issue Corporate Bonds?
73 Pages Posted: 4 Oct 2016 Last revised: 22 Feb 2018
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
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