State ownership and the cost of debt: Evidence from corporate bond issuances in China

Abstract

Corporate credit risk can be reduced through implicit government guarantees. State-owned enterprises (SOEs) in China provide a distinctive setting to investigate government roles in corporate debt financing. We find that non-SOEs’ corporate bond issuance costs are significantly higher than those of SOEs. We also observe relatively lower bond issuance costs for firms controlled by the central government (CSOEs) than those controlled by local governments (LSOEs). In addition, we demonstrate that compared with SOEs, non-SOEs’ financial constraints are mitigated to a larger extent after the bond issuances. Overall, we show that state ownership plays an important role in determining corporate bond issuance costs.