The Impact of Chinese New Budget Law on the Issuance cost of Urban Investment Bonds

Abstract

Abstract In the context of the continuously increasing risk of local government debt, reducing the issuance cost of urban investment bonds have become major concerns in society. Studying the impact and mechanisms of the new budget law, implemented under a stringent regulatory environment, on the issuance cost of urban investment bonds holds significant practical implications. This paper selects balanced panel data of urban investment bonds and industrial bonds issued nationwide from 2009 to 2021 as the research sample. The multi-period difference-in-differences (DID) method is employed to examine the impact and mechanisms of relevant government actions on the issuance cost of urban investment bonds. The results indicate that the promulgation and implementation of the new budget law have reduced the issuance price and financing cost of local bonds, thereby improving the financing environment for urban investment bonds. The examination of the action mechanisms reveals that the debt repayment situation of each province in these years plays a strong moderating role in the policy's impact. Moreover, these government actions influence the pricing and financing environment of urban investment bonds by standardizing their ratings. The research conclusions of this paper hold clear policy implications, providing guidance and reference value for the work of relevant government departments. JEL classification numbers: C12, D74. Keywords: Urban investment bonds, Bond prices, Systemic financial risk.