The Intra-regional Spillover Effects of Bond Defaults: Evidence from the Chinese Corporate Debt Market
63 Pages Posted: 24 Jan 2021 Last revised: 11 Nov 2022
Date Written: November 30, 2020
Abstract
Taking the first bond defaults in each province in China as credit events, we adopt a staggered difference-in-difference model and find that credit spreads of other corporate bonds in the same province increase by 15 basis points, suggesting spillover effects. The spillover effects are stronger on local state-owned enterprises (LSOEs) and non-state-owned enterprises (Non-SOEs) than on central state-owned enterprises (CSOEs). Moreover, the defaults of LSOEs trigger the greatest spillover effects among all types of defaults. Provinces with higher guarantee capability experience fewer spillover effects. Our findings suggest intra-regional spillover effects from investors’ shaken beliefs on implicit government guarantees.
Keywords: Bond default; Spillover effects; Implicit government guarantee; Corporate debt securities
JEL Classification: G12; G14; G38
Suggested Citation: Suggested Citation