Abstract
ABSTRACT We apply the synthetic control method (SCM) to evaluate the macroeconomic costs of a large state-owned enterprise (SOE) bond default in the Chinese province of Henan. By constructing the synthetic Henan using a weighted average of eligible provinces in the donor pool, we found that the economic cost of a high-profile SOE default is substantial: While debt financing cost in Henan soared by almost 100 bps and stayed high over the next five quarters, aggregate financing to the real sectors shrank by more than a third of the synthetic level at the time. Bond issuance froze and new bank loans dropped by a staggering 60% toward the end of the sample period. Consequently, GDP growth rate suffered a slowdown of more than 3%. Our findings point to the importance of local government support in understanding the macroeconomic consequences of SOE defaults in an emerging market.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callSimilar Papers
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
