A c c e p t e d M a n u s c r i p t Highlights  Chinese firms' leverage ratios decrease when the economic policy uncertainty increases.  This effect is heterogeneous across firms in terms of regional marketization, ownership and bank-firm relationship.  This effect is sourced from the deterioration of the external financing environment imposed by economic policy uncertainty  Firms adjust their financing structures by using more trade credit when economic policy uncertainty increases. relationships, mitigate the negative effect of policy uncertainty. Moreover, we provide consistent evidence that this negative effect is sourced from the deterioration of the external financing environment. We also find that firms adjust their financing structures by using more trade credit when economic policy uncertainty increases. Our results are robust to sample selection, data frequency, model specification and endogeneity. *Highlights (for review)

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The public yield spreads of bonds vary widely between Chinese provinces/ municipalities, with the average for the highest province double that of the lowest one. Although we find that these patterns are mainly attributable to economic and legal conditions, locational effects like geographic distance and public firm credit ratings also appear to be contributory. We show that these effects are induced by different regional informational environments and are robust to controlling for potential endogenous location choices.

The paper examines the reputation effect of credit rating agencies (CRAs) in China. We find a negative association between CRAs’ reputation and public bonds’ offering yield spreads after controlling for endogeneity. Analyses of the correlation between CRA reputation and bond return volatility in the aftermarket and cross‐sectional variations of reputation effects alongside a host of information environment proxies for issuers, we identify the information channel through which CRA reputation plays its role. This is further supported when we utilize an exogenous event, the introduction of an independent CRA (the China Bond Rating Co. Ltd), to explore the potential changes of the reputation effect.

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