Abstract
As the product of the combination of fiscal and financial, local government bonds should also follow the pricing mechanism of the securities market even under the special financial system in China. This paper uses Heckman's two-stage model to investigate whether the mechanism of underwriter reputation affects the pricing of local government bonds. The empirical results show that local governments tend to choose securities company underwriters with high reputation when they issue bonds with large scale, long maturity, and call right which have high degree of information asymmetry, and this tendency has an obvious time trend. However, high-reputation securities company underwriters failed to play the role of information intermediary to reduce the cost of local governments. On the contrary, implicit guarantees and government interventions induced the commercial banks to depress their quotations even leading to “interest rate upside down”, which resulted in the lack of securities company underwriters. In order to play the mechanism of underwriter reputation to promote the marketization of local government bonds pricing, this paper proposes to eliminate government interference, guide underwriters to strengthen the construction of their reputation, promote the marketization of underwriting fees and strengthen the supervision of underwriters.
Highlights
1.1 Background of the ResearchAt present, issuing local government bonds has become the only way of debt financing for local governments in China, and the sustainable development of local government bonds market directly affects the ability of national governance
Based on the underwriter reputation theory in the securities market, this paper examines whether the underwriter reputation plays the role of information authentication and signal transmission to affect the pricing of local government bonds, and puts forward suggestions to promote the market-oriented pricing http://ibr.ccsenet.org
Column (2) and column (3) added variables of issuer characteristics and market risk respectively, and the regression coefficient of underwriter reputation was still not significant. This shows that the overall level of marketization of local government bonds in China is low, and the high-reputation securities company underwriters do not play the role of information authentication and signal transmission, so they can not reduce the financing cost of local government by following the rules of the capital market
Summary
At present, issuing local government bonds has become the only way of debt financing for local governments in China, and the sustainable development of local government bonds market directly affects the ability of national governance. In the early stage of the development of the local government bonds market, due to the existence of non-market factors such as implicit guarantees, government intervention, formalization of credit rating and inadequate disclosure of information, the current pricing of local government bonds shows many phenomena contrary to theoretical expectations. How to achieve the market-oriented pricing of local government bonds in China has become the focus and difficulty of current academic circles. Based on the underwriter reputation theory in the securities market, this paper examines whether the underwriter reputation plays the role of information authentication and signal transmission to affect the pricing of local government bonds, and puts forward suggestions to promote the market-oriented pricing http://ibr.ccsenet.org. Vol 13, No 7; 2020 from the perspective of underwriters
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