The Financial Value of the Within-Government Political Network: Evidence From Chinese Municipal Corporate Bonds

13 Pages Posted: 27 Jan 2021 Last revised: 24 Feb 2021

See all articles by Jaehyuk Choi

Jaehyuk Choi

Peking University - HSBC School of Business

Lei Lu

Peking University - HSBC School of Business

Heungju Park

Sungkyunkwan University - SKK Business School

Sungbin Sohn

Peking University - HSBC Business School

Date Written: January 1, 2021

Abstract

This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders' working experience to measure the political network, we find that this network improves the credit ratings of the issuer, local government financing vehicles, reducing their issuance yield spreads. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed.

Keywords: Political Network, Guanxi, Local Government Financing Vehicles, Municipal Corporate Bonds, Credit Risk

JEL Classification: G12, G14, G28, H74

Suggested Citation

Choi, Jaehyuk and Lu, Lei and Park, Heungju and Sohn, Sungbin, The Financial Value of the Within-Government Political Network: Evidence From Chinese Municipal Corporate Bonds (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3742169 or http://dx.doi.org/10.2139/ssrn.3742169

Jaehyuk Choi

Peking University - HSBC School of Business ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

HOME PAGE: http://jaehyukchoi.net/phbs_en

Lei Lu

Peking University - HSBC School of Business ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

Heungju Park (Contact Author)

Sungkyunkwan University - SKK Business School ( email )

Seoul
Korea, Republic of (South Korea)

Sungbin Sohn

Peking University - HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China
+86-755-26035324 (Phone)
+86-755-26035344 (Fax)

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