Do political connections matter to bondholders? Evidence from China

Po-Hsin Ho, Yu-Chun Wang and Chih-Yung Lin

Applied Economics Letters, 2015, vol. 22, issue 15, 1240-1245

Abstract: This article examines the association between political connections and the pricing of bonds in China. Political connections are associated with higher at-issue spreads on corporate bonds, implying that political connections do not ensure the alignment of interests between managers and bondholders. The adverse effects of political connections on borrowing costs are eliminated when the chairman and the CEO are politically connected. Evidence suggests that bondholders price new debt issuances by using the information about the political backgrounds of top managers. Moreover, the costs and benefits of political connections for bondholders vary with the extent of the connectedness of a firm.

Date: 2015
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DOI: 10.1080/13504851.2015.1021452

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