Transmission of guarantor risk and its influence on bond credit spreads

Shenbao Liang and Zhimin Li

Finance Research Letters, 2025, vol. 76, issue C

Abstract: This study examines the risk propagation mechanism associated with guarantor relationships and its consequences on the credit spreads of bonded entities, drawing insights from the Chinese corporate bond market. The results indicate that a more substantial decline in the guarantor's implicit credit rating triggers a more pronounced widening of the credit spread for the guaranteed bonds. Furthermore, under similar levels of guarantor risk, a larger guarantee amount exacerbates the risk propagation effect on the guaranteed party. Notably, the influence of guarantor risk on bond credit spreads is more significant among non-state-owned enterprises.

Keywords: Guarantor risk; Credit spread; Guarantee Amount (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:76:y:2025:i:c:s1544612325002673

DOI: 10.1016/j.frl.2025.107003

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