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

See all articles by Wenlong Wang

Wenlong Wang

Tilburg University - Tilburg University School of Economics and Management; Central University of Finance and Economics (CUFE) - School of Finance

Yuqin Huang

Central University of Finance and Economics (CUFE) - School of Finance

John Watson

Monash University - Department of Banking and Finance

Bowen Yang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

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

Wang, Wenlong and Huang, Yuqin and Watson, John and Yang, Bowen, The Intra-regional Spillover Effects of Bond Defaults: Evidence from the Chinese Corporate Debt Market (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3739855 or http://dx.doi.org/10.2139/ssrn.3739855

Wenlong Wang (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Yuqin Huang

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Shahe Higher Education Park,
Changping District
Beijing, beijing 102206
China

John Watson

Monash University - Department of Banking and Finance

Melbourne
Australia

Bowen Yang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai, Shanghai 200030
China

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