Default risk, state ownership and the cross-section of stock returns: evidence from China

Lanlan Liu (), Dan Luo () and Liang Han ()
Additional contact information
Lanlan Liu: Nanjing Audit University
Dan Luo: University of Reading
Liang Han: University of Reading

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 4, No 1, 933-966

Abstract: Abstract We apply a structural model to estimate firm-level default risk in China and investigate the stock return predictability of default risk and the moderating effects of state ownership for the sample period from 2003 to 2015. We show unique evidence that in China, default risk is positively associated with expected stock returns and state ownership matters considerably to the return predictability of default risk. We find investors of state-owned enterprises are not compensated appropriately in China despite of their higher default risk exposure. Our empirical evidence supports the conjecture on shareholder advantages and suggests that a strong bargaining power of equity holders would have a negative impact on stock returns.

Keywords: Chinese stock market; Default risk; Return predictability; State ownership (search for similar items in EconPapers)
JEL-codes: C14 G14 G15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-018-0771-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:53:y:2019:i:4:d:10.1007_s11156-018-0771-0

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-018-0771-0

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().