The SOE Premium and Government Support in China's Credit Market

75 Pages Posted: 24 Dec 2019 Last revised: 2 Dec 2022

See all articles by Zhe Geng

Zhe Geng

Fudan University - School of Management

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Date Written: December 2019

Abstract

Studying China’s credit market using a structural default model that integrates credit risk, liquidity, and bailout, we document improved price discovery and deepening divide between state-owned enterprises (SOEs) and non-SOEs. Amidst liquidity deterioration, the presence of government bailout helps alleviate the heightened liquidity-driven default, making SOE bonds more valuable and widening the SOE premium. Meanwhile, the increased importance of government support makes SOEs more sensitive to bailout, while the heightened default risk increases non-SOEs’ sensitivity to credit quality. Examining the real impact, we find severe performance deteriorations of non-SOEs relative to SOEs, reversing the long-standing trend of non-SOEs outperforming SOEs.

Suggested Citation

Geng, Zhe and Pan, Jun, The SOE Premium and Government Support in China's Credit Market (December 2019). NBER Working Paper No. w26575, Available at SSRN: https://ssrn.com/abstract=3508554

Zhe Geng (Contact Author)

Fudan University - School of Management ( email )

No. 670, Guoshun Road
Shanghai, 200433
China

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
76
Abstract Views
461
rank
447,303
PlumX Metrics