Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets

Hui Chen (), Zhuo Chen, Zhiguo He (), Jinyu Liu and Rengming Xie

No 26520, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide causal evidence for the value of asset pledgeability. Our empirical strategy is based on a unique feature of the Chinese corporate bond markets, where bonds with identical fundamentals are simultaneously traded on two segmented markets with different rules for repo transactions. We utilize a policy shock on December 8, 2014, which rendered a class of AA+ and AA bonds ineligible for repo on one of the two markets. By comparing how bond prices changed across markets and rating classes around this event, we estimate that when the haircut increases from 0 to 100%, the bond yields increase in the range of 39 to 85 bps. These estimates help us infer the magnitude of the shadow cost of capital in China.

JEL-codes: G12 G18 G23 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-cna
Note: AP CF DEV EFG IFM
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Citations: View citations in EconPapers (18)

Published as HUI CHEN & ZHUO CHEN & ZHIGUO HE & JINYU LIU & RENGMING XIE, 2023. "Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets," The Journal of Finance, vol 78(5), pages 2563-2620.

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