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The financial value of the within-government political network: Evidence from Chinese municipal corporate bonds

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  • Choi, Jaehyuk
  • Lu, Lei
  • Park, Heungju
  • Sohn, Sungbin

Abstract

This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders’ working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed.

Suggested Citation

  • Choi, Jaehyuk & Lu, Lei & Park, Heungju & Sohn, Sungbin, 2022. "The financial value of the within-government political network: Evidence from Chinese municipal corporate bonds," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005158
    DOI: 10.1016/j.frl.2021.102552
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    More about this item

    Keywords

    Political network; Guanxi; Local government financing vehicles; Municipal corporate bonds; Credit risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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