Corporate Foreign Bond Issuance and Interfirm Loans in China

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThis paper uses firm-level data to document and analyze international bond issuance by Chinese non-financial corporations and the use of the proceeds of issuance. We find that dollar issuance is positively correlated with the differential between domestic and foreign interest rates. This interest rate differential increases the likelihood of dollar bond issuance by risky firms and decreases the likelihood of dollar bond issuance of exporters and profitable firms. Moreover, and most strikingly, we find that risky firms do more inter-firm lending than non-risky firms and that this lending rose significantly after the regulatory shock of 2008-09, when the authorities sought to restrict the financial activities of risky firms. Risky firms try to boost profitability by engaging in speculative activities that mimic the behavior of financial institutions while escaping prudential regulation that limits risk-taking by financial firms.financial corporations played a key role in this surge in international bond issuances. 1 There are concerns that when advanced economies will start increasing interest rates, foreign currency debt could become a threat to financial stability in emerging market (EM) countries (Acharya and Steffen (2015); Alfaro, Asis, Chari, and Panizza (2017); Elekdag, Alter, Arregui, Ichiue, Khadarina, Kikkawa, Kumarapathy, Narita, and Zhang (2015)).China was a key player in this recent increase in bond issuance. International Bonds issued by Chinese nationals represented 3.5 percent of total outstanding international bonds issued by EM nationals in 2007 and are now more than 20 percent of the total (the dollar amount of outstanding bonds went from $20 billion in 2007 to $823 billion at the end of 2016). In 2007, total issuances of international bonds by Chinese nationals were 5 percent of total issuances by EM nationals, while in 2016 total issuances of international bonds by Chinese nationals were close to 40 percent of total issuances (the dollar value went from $3 billion to $237 billion).Outstanding international bonds issued by Chinese non-financial corporations increased from $9 billion in 2007 (3% of total outstanding international bonds issued by EM nationals nonfinancial corporations) to $534 billion in 2016 (65% of total outstanding international bonds issued by EM nationals non-financial corporations). The share of these bonds denominated in US dollars increased from 66 percent in 2007 to 85 percent in 2016. This paper uses bond-...

Foreign currency borrowing and firm financing constraints in emerging markets: evidence from India

“…The authors find that external commercial borrowing became more prevalent after the global financial crisis and that firms with low leverage were more likely to issue foreign currency-denominated debt, witness an increase in cash holding, and face greater foreign currency risk. Huang, Panizza, and Portes (2018) analyze international bond issuance by nonfinancial Chinese firms and find their dollar-denominated bond issuance to be positively correlated with the interest rate differential between domestic and foreign interest rates. Gelos (2003) uses data on Mexican firms to show that the share of foreign currencydenominated debt in total debt is positively correlated with imports, exports, and the size of the firm.…”

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“…On the other way around, many Chinese firms have actively sought oversea funding sources by issuing foreign-currency denominated bonds(Huang, Panizza, and Portes, 2018).…”