Bond offerings in China

Abstract

This study appraises the value created by a bond offering in China, where high levels of state ownership and insider ownership raise concerns about the use of the proceeds. To estimate the impact of a bond issue on the firm's value, we apply an event‐study methodology on a sample of 481 issues of 347 Chinese companies over the period 2009–2013. It turns out that state ownership has a positive impact on the value of a bond offering for shareholders, which is consistent with an implicit guarantee of the issue by the state. For privately owned companies, insider ownership exerts a nonlinear impact on the firm's value, supporting an aligning effect in the use of the proceeds. Overall, the study confirms the key role of ownership structure in Chinese firms.

Bond Issuance as Reputational Signal: Debunking the Negative Perception of Additional Liability

“…Approval involves the investigation of the proposed investment project and the planned use of any potential capital raised for the project through a bond. In the Chinese context, the existence of an implicit government guarantee has been shown to raise the credit ratings of bond issuers (Bradford et al 2019) and has a positive impact on the value of a bond offering to shareholders (Klein and Weill 2018). If approval by the regulatory agency to issue a bond is interpreted by market participants as an implicit government guarantee, then even heavily indebted firms may face low costs of capital.…”