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The intra-regional spillover effects of bond defaults: Evidence from the Chinese corporate debt market

Wenlong Wang, Yuqin Huang, John Watson and Bowen Yang

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: Taking the first bond defaults in each province in China as credit events, we adopt a staggered difference-in-difference model and find that credit spreads of other corporate bonds in the same province increase by 15 basis points, suggesting spillover effects. The spillover effects are stronger on local state-owned enterprises (LSOEs) and non-state-owned enterprises (Non-SOEs) than on central state-owned enterprises (CSOEs). Moreover, the defaults of LSOEs trigger the greatest spillover effects among all types of defaults. Provinces with higher guarantee capability experience fewer spillover effects. Our findings suggest intra-regional spillover effects from investors' shaken beliefs on implicit government guarantees.

Keywords: Bond default; Spillover effects; Implicit government guarantee; Corporate debt securities (search for similar items in EconPapers)
JEL-codes: G12 G14 G38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22001822

DOI: 10.1016/j.pacfin.2022.101887

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