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Does prospectus readability matter for bond issuance pricing? Evidence from China

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  • Li, Fengyu
  • Yang, Mozhu
  • Zhang, Tong

Abstract

We investigate the informational role of prospectus readability in determining the pricing of newly issued bonds in China. We construct a text-based measure of prospectus readability and find that less readable prospectus is associated with higher credit spread of newly issued bond. Furthermore, we then find that less readability of prospectus is associated with higher default probability of issuers, which lends support to the information manipulation view of readability. Moreover, we observe that the relationship between readability and spread is more pronounced for issuers with lower ratings and private ownership, as well as for bonds lacking external guarantees and associated with less reputable underwriters. These findings collectively highlight the importance of prospectus readability as a determinant of bond pricing in China, indicating that investors require a risk premium for bonds with inferior readability in their prospectuses.

Suggested Citation

  • Li, Fengyu & Yang, Mozhu & Zhang, Tong, 2023. "Does prospectus readability matter for bond issuance pricing? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x23001403
    DOI: 10.1016/j.pacfin.2023.102074
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    Cited by:

    1. McGee, Paraic & Sheenan, Lisa & Egan, Tom & O'Donohoe, Sheila, 2025. "Risk factor disclosure in green bond prospectuses and investor compensation," International Review of Financial Analysis, Elsevier, vol. 105(C).
    2. Wu, Yuhui & Tian, Yanan & Han, Jie & Zhang, Zhilun, 2025. "Information or power? Financial infrastructure and carbon information disclosure," International Review of Financial Analysis, Elsevier, vol. 106(C).
    3. Chai, Bailin & Jiang, Fuwei & Lin, Yihao & You, Tian, 2025. "Predicting bond risk premiums with machine learning: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    4. Wen, Wen & Dong, Jinghan & Niu, Yuhao, 2026. "Public data availability and bond credit spreads: Evidence from China," Economic Modelling, Elsevier, vol. 154(C).
    5. Yi Lu & Aifan Ling & Chaoqun Wang & Yaxin Xu, 2025. "Why Bonds Fail Differently? Explainable Multimodal Learning for Multi-Class Default Prediction," Papers 2509.10802, arXiv.org.
    6. Peng, Yueqian & Shi, Li & Shi, Xiaojun & Tan, Songtao, 2024. "Tone or term: Machine-learning text analysis, featured vocabulary extraction, and evidence from bond pricing in China," Journal of Empirical Finance, Elsevier, vol. 78(C).
    7. Sharma, Shivani & Sharma, Udayan, 2025. "What does green bond prospectus communicate about credit spread?," Finance Research Letters, Elsevier, vol. 79(C).

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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