The impacts of political uncertainty on public financing costs: evidence from anti-corruption investigations in China

Haoyu Gao (), Fukang Chen () and Yiling Ouyang ()
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Haoyu Gao: Renmin University of China
Fukang Chen: Renmin University of China
Yiling Ouyang: Shanghai University of International Business and Economics

Public Choice, 2024, vol. 198, issue 1, No 5, 69-91

Abstract: Abstract Our study investigates the impact of local political uncertainty on public financing costs in China. By examining a series of unexpected turnovers of municipal government leaders, we find that the offering yield spreads of municipal corporate bonds increase by around 23 basis points shortly following an anti-corruption investigation and reverse afterward. Indicators show that the anti-corruption investigation escalates the short-term uncertainty about government actions. The pricing effect is stronger for issuers with higher exposure to government policies or lower financial resilience. A transparent information environment alleviates the impact. In contrast, temporary government inefficiency does not explain the increase in yield spreads. Our findings suggest that political uncertainty is a determinant of public financing costs.

Keywords: Political uncertainty; Anti-corruption; Public financing; Municipal corporate bonds (search for similar items in EconPapers)
JEL-codes: D73 G12 G18 H74 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11127-023-01111-7

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