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Political turnover and corporate credit spread: Evidence from China

Author

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  • Fu, Lili
  • Chen, Zhen

Abstract

Using hand-collected data on changes of government officials in 288 Chinese cities from 2002 to 2018, we examine how political turnover affects corporate credit spread in China. We find that political turnover leads to an increase in corporate credit spread. This result is robust after using PSM method and Heckman method to control the endogeneity concerns. The effect is more significant in bonds close to maturity, SOEs and Local SOEs, areas with officials not be promoted and unexpected, and during a market boom. Moreover, we examine whether this effect is a reasonable choice for creditors. We find that political turnover can increase both the default probability and the financial risk of companies.

Suggested Citation

  • Fu, Lili & Chen, Zhen, 2024. "Political turnover and corporate credit spread: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x23003153
    DOI: 10.1016/j.pacfin.2023.102244
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    More about this item

    Keywords

    Political turnover; Political uncertainty; Credit risk; Credit spread;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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