Corporate bonds with implicit government guarantees

Ran Zhang, Yifei Li and Yuan Tian

Pacific-Basin Finance Journal, 2022, vol. 71, issue C

Abstract: We model an implicit government guarantee as a partial protection for corporate bonds issued by state-owned enterprises (SOEs) and present pervasive evidence of its existence in the Chinese corporate bond market. The protection effect is stronger among poorly rated SOE bonds than for highly rated SOE bonds – for newly issued corporate bonds, the average guarantee premium is 72 basis points (bps) for AAA bonds while it is 166 bps for AA- (lowest issuance rating) bonds. We find the guarantee premiums are higher for bonds issued by central government sponsored SOEs and by issuers from strategically important sectors, raising concerns of the potential too-interconnected-to-fail problem.

Keywords: Implicit government guarantee; Bond yield; Default; Credit rating (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:71:y:2022:i:c:s0927538x21002043

DOI: 10.1016/j.pacfin.2021.101697

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