Economic Policy Uncertainty, Credit Rating Inflation and Credit Spread

Abstract

Utilizing data of corporate bonds issued by Chinese companies in Shanghai and Shenzhen Stock Exchanges, this paper examines the impact and mechanism of China's economic policy uncertainty on corporate bond credit spreads. The research finds: (1) Generally speaking, the increase of economic policy uncertainty will lead to larger credit spreads. (2) The impact of economic policy uncertainty on credit spreads will have an asymmetric effect due to factors such as property rights, corporate size and equity concentration. (3) Credit rating inflation plays a certain mediating effect in the influence of economic policy uncertainty on credit spreads. Government should pay more attention to the policy consistency and coherence, strengthen the information exchange and communication with enterprises, improve the bond pricing system and broaden the financing channels of small and medium-sized enterprises.