Abstract
The bond prospectus is an important source of disclosure for bond information, in which the quality of investor protection-related text conveys the issuer’s efforts on investor protection and risk management. We try to find out whether reader-friendly prospectus make investors process information more easily, which finally leads to lower credit premium. This study innovatively explores the impact of investor protection-related text quality on bond credit risk premiums, using a total of 6,025 Chinese listed corporate bonds from 2006 to 2022 as a sample for regression. The results show that the higher the Fog Index of investor protection disclosure, the higher the bond credit risk premium; the higher the boilerplate of investor protection disclosure, the lower the bond credit risk premium. Meanwhile, we further find the positive moderating effect of option-embedded bonds in the above relationships, and conclude that option-embedded bonds have stronger relationships between bond credit risk premiums and boilerplate or Fog Index than normal bonds. This study holds significant reference value for regulators to formulate policies and standardize information disclosure to ensure investors’ rights and interests.
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