Seminar Vol. 218
Title: Boosted Credit Ratings in China: The Effects of Credit Enhancement on Bond Pricing
Speaker: Yuting Huang, Capital University of Economics and Business
Time: April 27th, 2020 15:00-16:30
About the speaker:
Yuting Huang is Assistant Professor in the International School of Economic & Management, Capital University of Economics and Business, Beijing. She obtained her Ph.D. in Real Estate from the National University of Singapore in 2018. Her main research interests are in Financial Economics, Behavioral Finance, Real Estate Finance and China's capital markets. Yuting Huang work has appeared in such international journals as Journal of Housing Economics, Journal of Real Estate Research, Journal of International Financial Markets, and Institutions and Money.
Abstract:
Using a comprehensive dataset of 7,626 enterprise bonds and corporate bonds issued between January 2009 and December 2019 in China, we find that 25.2% of bonds receive boosted credit ratings at issuance; among them, 96.6% used credit enhancement. This paper empirically studies whether and how the credit enhancement structure in bond contracts affects bond pricing. First, our main findings show that the usage of credit enhancement at issuance can effectively help lower financing costs. Second, we use the propensity score matching procedure and instrumental variable analysis to control for the potential endogeneity of the usage of credit enhancement. Third, we find that the magnitude of cost reduction is larger for riskier firms, and when credit enhancement is provided by more reliable guarantors, which support the risk-sharing mechanism. The information production mechanism is also discussed and excluded. Last, we show that bond investors unsurprisingly discount bonds with boosted credit ratings.
Interested in this webinar? Please contact Feiyan at feiyantang@jnu.edu.cn, or scan the QR code bellow to register by April 25th (12 PM).
