The Real Effects of Implicit Government Guarantee: Evidence from Chinese SOE Defaults

50 Pages Posted: 15 Feb 2017 Last revised: 14 Oct 2019

See all articles by Shuang Jin

Shuang Jin

HKUST

Wei Wang

Queen's University - Smith School of Business

Zilong Zhang

City University of Hong Kong

Date Written: April 12, 2018

Abstract

We study the effects of implicit government guarantee (IGG) on corporate investment by exploiting a series of defaults in China’s onshore bond markets by state-owned enterprises (SOEs) starting in 2015. Our difference-in-difference tests show that SOEs reduce their investments by 3% of book assets, on average, relative to propensity-score matched non-SOEs in the periods after the first SOE default. The investment reduction concentrates among SOEs with more severe agency problems. SOEs experience more positive market reactions to acquisition announcements after the default events. Our findings suggest that the reduction of IGG alleviates the soft budget constraint problem and disciplines managers.

Keywords: implicit government guarantee, investment, acquisition, state-owned enterprise, default

JEL Classification: G12, G15, G30, G38

Suggested Citation

Jin, Shuang and Wang, Wei and Zhang, Zilong, The Real Effects of Implicit Government Guarantee: Evidence from Chinese SOE Defaults (April 12, 2018). Available at SSRN: https://ssrn.com/abstract=2916456 or http://dx.doi.org/10.2139/ssrn.2916456

Shuang Jin (Contact Author)

HKUST ( email )

Clear Water Bay, Kowloon
Hong Kong

Wei Wang

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Zilong Zhang

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
214
Abstract Views
1,059
rank
145,483
PlumX Metrics