Two Essays on Chinese Bond Market


Student thesis: Doctoral Thesis

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Awarding Institution
  • Xiaoguang Yang (External person) (External Supervisor)
  • Tao LI (Supervisor)
Award date31 Oct 2022


This study uses the data from Wind database and attempts to answer two important research questions in Chinese bond market: (1) Does the geographic proximate underwriters affects bonds’ characteristics? (2) Does the economic policy uncertainty influence the financing costs of Chengtou bonds? If so, how will the effect change if considering the explicit and implicit guarantee from local governments?

Chapter 1 titled “Geographic Proximity of Underwriters and Information Channel Substitution Effects in Bond Markets: Evidence from China” studies the impact of the geographic proximity of underwriters on bond characteristics by using corporate and enterprise bonds issued in China from 2009 to 2019. This thesis finds that bonds underwritten by underwriters in close geographic proximity are associated with lower financing costs, longer maturity in high and medium credit rating firms, shorter maturity in low credit rating firms, and lower default risk. Further, I find substitution effects between the geographic proximity of underwriter and underwriter reputation, and also between the geographic proximity of underwriter and firm transparency on reducing the costs of bond financing; i.e., a better reputation of the underwriter or higher transparency of the firm will weaken geographical proximate underwriters’ effects. The results are robust in subsamples when firms have different degrees of local government connections.

Chapter 2 titled “Economic Policy Uncertainty, Local Government’s Guarantees and the Financing Costs of Chengtou Bonds” investigates the impact of economic policy uncertainty of China on the financing costs of Chengtou bonds. My major finding is that the economic policy uncertainty will increase the financing costs of Chengtou bonds. Further, I find that the impact of economic policy uncertainty is weakened when the local government has a stronger implicit guarantee power or the guarantee companies of bonds are central- and local- SOEs. These findings are robust under different economic policy uncertainty measures and the consideration of the endogenous issue.

Chinese bond market has become the world’s second largest at present. However, compared with other developed bond markets, Chinese bond market is still in a development stage. Studying the factors that affect the bond’s characteristics will help us better understand the Chinese bond market. This thesis provides new insights into two important factors that will influence bonds’ characteristics on Chinese bond market; it also provides some reference for investors in investment decision-making and boosts the high-quality development of Chinese bond market.