Minimum wage policy uncertainty and bond credit spreads: Evidence from China

ESG provides a comprehensive framework for the company's sustainable development and helps to realize the goal of "double carbon". In this article, we take A-share listed companies in China from 2014 to 2022 as a sample, empirically examines the impact of corporate ESG performance on bond credit spreads, and analyzes the relationship between ESG performance and bond credit spreads in light of analysts' attention. The main findings are: first, the ESG performance of enterprises and bond credit spreads show a significant negative correlation. This reflects that the bond market is able to recognize firms with better ESG performance and price their bond issues reasonably. Second, this paper finds that analysts' attention strengthens the negative correlation between firms' ESG performance and bond credit spreads, and analysts' multi-party transmission of information reduces the impact of the information asymmetry problem and improves the efficiency of the role of firms' ESG performance on bond credit spreads. Third, the moderating effect of analyst attention on the relationship between ESG performance and bond credit spreads is more pronounced in more market-oriented regions than in less market-oriented regions. This paper enriches the research related to green transition and bond market, and provides certain theoretical basis for promoting the high-quality development of China's bond market.

China's interbank bond market is an institutional investor market, and transactions are more information-based. Whether and how informed trading can affect credit bond pricing is an urgent problem to be solved in the study of China's bond asset pricing. This paper uses credit bond issuance and trading data and stock high-frequency trading data from May 2014 to December 2020 to construct informed trading probability and bond liquidity indicators. Using regression analysis and adjustment and mediation effect test methods, this paper studies the impact of informed trading on China's interbank credit bond pricing and the channel role of liquidity. The results show that the probability of informed trading has a significant positive impact on credit bond spreads. Informed trading leads to an increase in credit bond spreads by amplifying bond illiquidity. The amplifying effect of informed trading on credit bond spreads is stronger for bonds with high illiquidity. The amplifying effect of informed trading on credit bond spreads will be stronger in private enterprises, enterprises with low information transparency, and high debt ratios. This study reveals the risk nature of informed trading in China's interbank bond market, which helps to deepen the understanding and management of the bond market.

PurposeThe main purpose of this study is to examine the effect of corporate digital transformation on bond credit spreads. Additionally, it also explores the two potential channels, information asymmetry and default risk, through which digital transformation can influence bond credit spreads.Design/methodology/approachWe use the bond issuance data of Chinese listed companies over the period 2008–2020. Corporate digital transformation of these companies is measured with textual analysis of the management discussion and analysis part of annual reports. We employ a panel regression model to estimate the effect of digital transformation on bond credit spreads.FindingsWe find robust evidence that companies with higher digital transformation experience lower bond credit spreads. We further observe that credit spread reduction is higher for firms that are smaller, non-state-owned, have lower credit ratings and have less analyst coverage. We also find evidence that digital transformation reduces credit spreads by reducing the information asymmetry between firms and investors with enhanced information transformation mechanisms and lowering corporate default risk by strengthening operating efficiency.Originality/valueTo the best of our knowledge, this study is the first attempt to understand the impact of corporate digital transformation on bond credit spreads. Our findings help to understand the effect of digital transformation on firms’ credit worthiness and access to capital.

How does corporate ESG performance affect bond credit spreads: Empirical evidence from China

Corporate strategy aggressiveness and bond credit spreads

Corporate financing from shadow banking and bond credit spreads

Causality Relationship between Bond Ratings and Credit Spreads

This study investigates the impact of corporate ESG performance on bond credit spreads based on a sample of corporate bonds issued by A-share listed firms in China during 2009–2022. Our findings reveal that higher ESG performance is associated with lower bond credit spreads, implying that firms with superior ESG performance obtain cheaper bond financing. We document three channels linking ESG to credit spreads: the reputation effect, the insurance effect, and the information effect. Heterogeneity analyses show that the negative relationship between ESG and credit spreads is more pronounced among firms that disclose environmental and sustainability information, voluntarily publish social responsibility reports, issue unsecured bonds, or issue bonds without special terms. The effect is also stronger during periods of contractionary monetary policy in China. Moreover, our findings suggest that improvements in firm-level ESG performance and reduced disagreement over ESG ratings contribute to lower bond premiums. Higher corporate ESG performance also exhibits spillover effects, leading to lower credit spreads within the industry. Finally, we show that improved corporate ESG performance reduces bond credit spreads and enhances firm value. Our study provides practical guidance for optimizing bond issuance strategies and managing credit risk through ESG practices.

Corporate climate risk and bond credit spreads

In this paper, we explore the features of a structural credit risk model wherein the firm value is driven by normal tempered stable (NTS) process belonging to the larger class of Levy processes. For the purpose of comparability, the calibration to the term structure of a corporate bond credit spread is conducted under both NTS structural model and Merton structural model. We find that NTS structural model provides better fit for all credit ratings than Merton structural model. However, it is noticed that probabilities of default derived from the calibration of the term structure of a bond credit spread might be overestimated since the bond credit spread could contain non-default components such as illiquidity risk or asymmetric tax treatment. Hence, considering CDS spread as a reflection of the pure credit risk for the reference entity, we calibrate it in order to obtain more reasonable probability of default and obtain valid results in calibration of the market CDS spread with NTS structural model.

Purpose: The economy has entered a new normal in China and the transformation and upgrading of the economic structure has exacerbated the risks in the financial market. This study aims to investigate economic policy uncertainty and corporate bond credit spreads in China. Methodology: A total of 3,265 corporate bonds derived from Chinese A-share listed firms between 2011 and 2020 are explored, and the dynamic unbalanced panel one-step system Generalised Method of Moments is used. Findings: The results indicate that economic policy uncertainty has a significantly positive relationship with credit spreads of corporate bonds and different dimensions of economic policy uncertainty, including monetary policy uncertainty. Fiscal policy uncertainty also has a significantly positive relationship with credit spreads. Originality: This study discovers the impact of economic policy uncertainty on corporate bond credit spreads in China, contributing insights into sustainable financial practices. Keywords: Credit Spreads of Corporate Bonds; Economic Policy Uncertainty; Monetary Policy Uncertainty; Fiscal Policy Uncertainty; Executive Compensation. Citation: Kang, W., Zulkafli, A.H. and Mia, A. (2024): Economic Policy Uncertainty and Corporate Bond Credit Spreads in China: Insights from a System GMM Approach on Sustainable Financial Practices. World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 20, Nos 3-4, pp.265-282.

From the perspective of the credit risk, this paper discusses the factors affecting credit spreads of different credit risk corporate bonds. The study chooses the credit rating as the standard to measure the credit risk of corporate bonds. The sample of daily data covers the period from August 2013 to December 2015 and we use Merton model to analyze the different influencing factors. The empirical results show that the yield curve slope, stock market volatility and 3 months SHIBOR and credit spreads are positively related; the risk-free interest rate and credit spreads have significantly negative correlation, but they are not stable; stock market credit spreads are not significant and while for different credit rating of corporate bonds, the macroeconomic variables have different impacts.

This paper exploits the implied information of data collected from credit spreads of Chinese corporate bonds and systemic and idiosyncratic risk factors. We compute contribution of risk factors to credit spreads of Chinese corporate bonds by establishing the unbalanced panel data model, identify the key factors impacting the size of credit spreads of corporate bonds. Knowledge extracted by data mining is helpful to investors for reasonable pricing of bonds and making rational investment decisions. When selecting variables, the unbalanced panel data model is used to calculate the Zero-volatility credit spreads, which are more accurate. We use term structure adjusted return of bond index as the systemic risk factor of corporate bond market, the three Fama/French systemic factors as the systemic risk factors of stock markets and idiosyncratic stock/bond volatility and idiosyncratic bond value-at-risk as the idiosyncratic risk factors. Empirical analysis of corporate bonds sampling China’s listing Corporation issued and traded on Shanghai Stock Exchange from 2008 to 2011 shows that the size of credit spreads is mainly determined by the systemic risk factors of bond market, i.e. risk factors of stock market make very little contribution to the spread; the idiosyncratic risk factors also contribute. An interesting phenomenon is that we find that the relationship between idiosyncratic stock volatility and credit spread is negative, which is contrary to extant research while the relationship is positive and mainly focuses on impact of risk factors on credit spread of corporate bond.

Bond Return, Spread Change, and the Momentum Effect in Corporate Bond and Stock Markets

This paper examines how the adoption of industrial robots affects bond credit spreads. Using panel data of Chinese listed manufacturing enterprises from 2011 to 2019, we conduct an analysis that integrates the data on enterprise robot penetration rates and green bond issuance. We find a negative relationship between industrial robot adoption and green bond credit spreads, which increases the green premium. We also explore the mechanisms through which industrial robot adoption improves the green premium, identifying green innovation, green product advantage, and green transformation. CEO overseas experience, investors’ green attention, and CEO green certification have a significant positive moderating effect on the relationship between robot adoption and the green premium. The negative relationship between industrial robot adoption and bond credit spread is more pronounced among firms with high information disclosure, positive environmental attitude, intense supervision, high R&D investment, and mature enterprises. Further analysis reveals that the adoption of industrial robots, by increasing the green premium, leads to improved corporate social responsibility performance. Our research highlights the role of advanced manufacturing technology in green finance, expanding the understanding of the advantages of enterprise technology upgrades and sustainable financing.