Exploring the correlation between financial leverage and corporate bond credit spreads

Zi Lin, Qing Yang and Shasha Chen

Finance Research Letters, 2025, vol. 75, issue C

Abstract: This research utilizes data from Chinese listed companies spanning the years 2012 to 2022 to conduct an in-depth examination of the interplay between financial leverage and corporate bond credit spreads. The findings reveal a nuanced relationship: at lower levels of financial leverage, the two exhibit a negative correlation, whereas at higher levels, they demonstrate a positive correlation. Furthermore, it is observed that robust internal control mechanisms and effective equity incentive programs can markedly mitigate the adverse effects of financial leverage on bond credit spreads. These insights offer crucial guidance for firms seeking to optimize their financial structures and mitigate credit risks.

Keywords: Corporate bonds; Credit spreads; Financial leverage; Equity incentives; Internal control (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001205

DOI: 10.1016/j.frl.2025.106855

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