China's no-bailout reform: Impact on bond yields and rating standards

Guiqing Mo, Zhi Gao and Lei Zhou

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: The Chinese government broke its long-standing practice of bond bailouts in March 2014. The number and value of bond defaults increased substantially in the following years. We investigate bond defaults in China from 2014 to 2019 and examine the impact of no-bailout reform. We find significantly higher yield spreads on lower-rated bonds over AAA bonds after the policy change. Furthermore, we document much lower default rates for SOE bonds than non-SOE bonds and an increased funding advantage of SOEs after March 2014. Surprisingly, credit rating agencies loosened rating standards in response to the policy change, suggesting their caving into issuer demands for higher ratings.

Keywords: China's No-bailout Reform; Bond Yield; Credit Rating; Implicit Government Gurantee; Economic Reform; Bond Default (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002387

DOI: 10.1016/j.jbankfin.2021.106282

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