Competition, Rating Shopping and Yield Spread: Evidence from Chinese Enterprise Bond Market

51 Pages Posted: 31 May 2018

See all articles by Shaoyu LI

Shaoyu LI

Southwestern University of Finance and Economics (SWUFE) - School of Securities and Futures

Henry Hongren Huang

National Central University

Jeffrey Oxman

University of St. Thomas

Date Written: May 20, 2018

Abstract

Booming markets are a time of high returns and high risk, including the risk of misrepresenting the quality of an investment. The Chinese bond market has recently been going through a boom period, and we document evidence of ratings shopping in the enterprise bond market. Our evidence shows that some firms get higher credit ratings than they should, resulting in a lower cost of debt financing. We also find that investors become aware of this after multiple financing rounds and punish all clients of the ratings inflators, resulting in a lemons market in bonds for certain firms.

Keywords: sample selection; rating shopping; relative yield spread; market share

JEL Classification: D43; G24; L14; L15

Suggested Citation

LI, Shaoyu and Huang, Henry Hongren and Oxman, Jeffrey, Competition, Rating Shopping and Yield Spread: Evidence from Chinese Enterprise Bond Market (May 20, 2018). Available at SSRN: https://ssrn.com/abstract=3181276 or http://dx.doi.org/10.2139/ssrn.3181276

Shaoyu LI

Southwestern University of Finance and Economics (SWUFE) - School of Securities and Futures ( email )

Chengdu
China

Henry Hongren Huang (Contact Author)

National Central University ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Jeffrey Oxman

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States

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