Transportation infrastructure and bond issuance credit spread: Evidence from the Chinese high-speed rail construction

Abstract

Based on the Chinese high-speed rail (HSR) construction that advances transportation infrastructure, this paper investigates the effect of improved transportation infrastructure on bond issuance credit spread. We find that firms affected by opening HSR experience a significant decrease in bond issuance credit spread, suggesting that improved transportation infrastructure helps decrease firms’ financial costs. Moreover, this effect is more pronounced for issuers with more severe information opacity and/or smaller analyst coverage, consistent with the “information mechanism” that opening HSR leads to a better information environment and thus lower bond issuance credit spread. In contrast, we do not find supportive evidence for the potential “governance mechanism” or “growth mechanism” that may be related to the beneficial effect of opening HSR. Overall, our study extends related literature by showing that improved transportation infrastructure has a favorable impact on the bond market, and has important implications for policymakers and bond issuers to reduce financing costs.