Political turnover and corporate credit spread: Evidence from China

Lili Fu and Zhen Chen

Pacific-Basin Finance Journal, 2024, vol. 83, issue C

Abstract: Using hand-collected data on changes of government officials in 288 Chinese cities from 2002 to 2018, we examine how political turnover affects corporate credit spread in China. We find that political turnover leads to an increase in corporate credit spread. This result is robust after using PSM method and Heckman method to control the endogeneity concerns. The effect is more significant in bonds close to maturity, SOEs and Local SOEs, areas with officials not be promoted and unexpected, and during a market boom. Moreover, we examine whether this effect is a reasonable choice for creditors. We find that political turnover can increase both the default probability and the financial risk of companies.

Keywords: Political turnover; Political uncertainty; Credit risk; Credit spread (search for similar items in EconPapers)
JEL-codes: G12 G18 G38 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x23003153

DOI: 10.1016/j.pacfin.2023.102244

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