Ownership Structure and the Cost of Debt: Evidence from Chinese Corporate Bond Market

Abstract

We study how firms’ ownership structure affects the cost of debt using evidence from Chinese corporate bond market. Our result shows state, institutional, and foreign ownership all help to reduce firms’ cost of debt. The effect of state ownership is more pronounced if the issuer is headquartered in stronger marketized provinces, operates in industries less dominant by state asset, and after the Party’s anti-corruption campaign. Institutional ownership matters more in low marketized environment especially for lower quality firms. Our evidence sheds light on the ownership-cost of debt nexus in a political economy where state and private firms face productivity and credit frictions, and how market environment interacts with corporate ownership on the cost of bond.