IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v49y2025i1d10.1007_s12197-024-09699-2.html
   My bibliography  Save this article

Examining the cost of debt and bond spreads: public vs. private firms in China

Author

Listed:
  • Lewis Liu

    (The University of Queensland)

Abstract

This study examines the cost of debt issued by private firms relative to that issued by public firms in China. This study argues that private firms have more direct access to management and increased involvement by minority shareholders manifest in the relative benefits of reduced information asymmetry, more efficient financing and investing decisions, and enhanced monitoring, and thus ultimately a lower cost. Using a unique dataset of 6.942 bond issuances spanning the period 2010 – 2017, this study confirms a cost benefit to private firm issuers of public debt relative to public firm issuers. The results of a series of additional tests (propensity score matching, entropy balancing, and alternative measures) provide further support for the primary conclusions.

Suggested Citation

  • Lewis Liu, 2025. "Examining the cost of debt and bond spreads: public vs. private firms in China," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(1), pages 1-22, March.
    • Handle: RePEc:spr:jecfin:v:49:y:2025:i:1:d:10.1007_s12197-024-09699-2
    DOI: 10.1007/s12197-024-09699-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12197-024-09699-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12197-024-09699-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Ekholm, Anders & Maury, Benjamin, 2014. "Portfolio Concentration and Firm Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(4), pages 903-931, August.
    2. Eduardo A. Cavallo & Patricio Valenzuela, 2010. "The determinants of corporate risk in emerging markets: an option-adjusted spread analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-74.
    3. JOSEPH A. McCAHERY & ZACHARIAS SAUTNER & LAURA T. STARKS, 2016. "Behind the Scenes: The Corporate Governance Preferences of Institutional Investors," Journal of Finance, American Finance Association, vol. 71(6), pages 2905-2932, December.
    4. John C. Coffee, 2005. "A Theory of Corporate Scandals: Why the USA and Europe Differ," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(2), pages 198-211, Summer.
    5. Mara Faccio & Maria-Teresa Marchica & Roberto Mura, 2011. "Large Shareholder Diversification and Corporate Risk-Taking," The Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3601-3641.
    6. Eugene Soltes, 2014. "Private Interaction Between Firm Management and Sell‐Side Analysts," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 245-272, March.
    7. repec:bla:jfinan:v:58:y:2003:i:3:p:1301-1327 is not listed on IDEAS
    8. David Solomon & Eugene Soltes, 2015. "What Are We Meeting For? The Consequences of Private Meetings with Investors," Journal of Law and Economics, University of Chicago Press, vol. 58(2), pages 325-355.
    9. Nobuyuki Teshima, 2012. "Management Ownership and Risk-Shifting Investment," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 75-85, December.
    10. repec:bla:jfinan:v:53:y:1998:i:1:p:27-64 is not listed on IDEAS
    11. Alex Edmans, 2014. "Blockholders and Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 23-50, December.
    12. Glushkov, Denys & Khorana, Ajay & Rau, P. Raghavendra & Zhang, Jingxuan, 2018. "Why Do Firms Go Public Through Debt Instead of Equity?," Critical Finance Review, now publishers, vol. 7(1), pages 85-110, July.
    13. Clive Lennox, 2005. "Management Ownership and Audit Firm Size," Contemporary Accounting Research, John Wiley & Sons, vol. 22(1), pages 205-227, March.
    14. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, February.
    15. Anthony Saunders & Sascha Steffen, 2011. "The Costs of Being Private: Evidence from the Loan Market," The Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 4091-4122.
    16. Bhide, Amar, 1993. "The hidden costs of stock market liquidity," Journal of Financial Economics, Elsevier, vol. 34(1), pages 31-51, August.
    17. Paglia John K & Harjoto Maretno, 2010. "The Discount for Lack of Marketability in Privately Owned Companies: A Multiples Approach," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 5(1), pages 1-26, August.
    18. Amiri-Moghadam, Sadra & Javadi, Siamak & Rastad, Mahdi, 2021. "The Impact of Stronger Shareholder Control on Bondholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(4), pages 1259-1295, June.
    19. Abudy, Menachem & Benninga, Simon & Shust, Efrat, 2016. "The cost of equity for private firms," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 431-443.
    20. Hadiye Aslan & Praveen Kumar, 2012. "Strategic Ownership Structure and the Cost of Debt," The Review of Financial Studies, Society for Financial Studies, vol. 25(7), pages 2257-2299.
    21. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edmans, Alex & Holderness, Clifford, 2016. "Blockholders: A Survey of Theory and Evidence," CEPR Discussion Papers 11442, C.E.P.R. Discussion Papers.
    2. Bajo, Emanuele & Croci, Ettore & Marinelli, Nicoletta, 2020. "Institutional investor networks and firm value," Journal of Business Research, Elsevier, vol. 112(C), pages 65-80.
    3. Oh, Hyunjin & Chung, Chune Young & Fard, Amirhossein, 2023. "Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring," Research in International Business and Finance, Elsevier, vol. 64(C).
    4. Ravid, S. Abraham & Sekerci, Naciye, 2020. "Large investors’ portfolio composition and firms value," Journal of Corporate Finance, Elsevier, vol. 61(C).
    5. Ole-Kristian Hope & Han Wu & Wuyang Zhao, 2017. "Blockholder exit threats in the presence of private benefits of control," Review of Accounting Studies, Springer, vol. 22(2), pages 873-902, June.
    6. Jing Xie, 2024. "Stock-Picking by Mutual Funds: Evidence from Trading in Family-Controlled Firms," Working Papers 202411, University of Macau, Faculty of Business Administration.
    7. Cao, Jerry & Wang, Hanyang & Zhou, Sili, 2022. "Soft activism and corporate dividend policy: Evidence from institutional investors site visits," Journal of Corporate Finance, Elsevier, vol. 75(C).
    8. Schmidt, Cornelius & Fahlenbrach, Rüdiger, 2017. "Do exogenous changes in passive institutional ownership affect corporate governance and firm value?," Journal of Financial Economics, Elsevier, vol. 124(2), pages 285-306.
    9. Dario Salerno, 2021. "The Impact of Initial Public Offerings on Firms’ Performance: Disentangling Treatment from Self-Selection Effects," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(4), pages 1-1.
    10. Patricio Duran & Marcelo Ortiz, 2020. "When More Is Better: Multifamily Firms and Firm Performance," Entrepreneurship Theory and Practice, , vol. 44(4), pages 761-783, July.
    11. Ziwei Wang & Chunfeng Wang & Zhenming Fang, 2023. "Common institutional ownership and corporate misconduct," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 102-136, January.
    12. Wang, Yanyan & He, Xubiao, 2024. "Competence enhancement from interactive learning: Does attending conferences affect CEO turnover?," International Review of Economics & Finance, Elsevier, vol. 95(C).
    13. Roberto Barontini & Stefano Bozzi & Guido Ferrarini, 2017. "Executive remuneration standards and the “conformity gap” at controlled corporations," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 573-597, September.
    14. Kristian D. Allee & Brian J. Bushee & Tyler J. Kleppe & Andrew T. Pierce, 2022. "Did the Siebel Systems Case Limit the SEC's Ability to Enforce Regulation Fair Disclosure?," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1235-1291, September.
    15. El Moujahid, Oussama & Frijns, Bart & Ravid, S. Abraham & Sekerci, Naciye, 2025. "Foreign ownership and board cultural diversity," Journal of Corporate Finance, Elsevier, vol. 92(C).
    16. Angelo M. Solarino & Brian K. Boyd, 2020. "Are all forms of ownership prone to tunneling? A meta‐analysis," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 488-501, November.
    17. Liu, Ruiming & Si, Haiping & Miao, Miao, 2022. "One false step can make a great difference: Does corporate litigation cause the exit of the controlling shareholder?," Journal of Corporate Finance, Elsevier, vol. 73(C).
    18. Lu, Chunyang & Yang, Xingquan, 2024. "Capital market opening and insider trading profitability: Empirical evidence in the context of ‘Mainland China–Hong Kong Stock Connect’," Journal of Asian Economics, Elsevier, vol. 94(C).
    19. Lugo, Stefano, 2019. "Insider ownership and the cost of debt capital: Evidence from bank loans," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 357-368.
    20. Jiangyuan Wang & Guangqiang Liu & Qisong Xiong, 2020. "Institutional investors’ information seeking and stock price crash risk: nonlinear relationship based on management’s opportunistic behaviour," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4621-4649, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:49:y:2025:i:1:d:10.1007_s12197-024-09699-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.