Directors'and Officers'liability insurance and bond credit spreads:Evidence from China

Using hand-collected data on purchases of D&O insurance by Chinese listed firms for the period from 2008 to 2019,we empirically find that D&O insurance negatively associates with credit spreads.The negative relationship still holds after conducting a series of robustness tests and is not driven by the eyeball effect.We also show that D&O insurance can reduce credit spreads via the channels of internal controls,external monitoring,information asymmetry and default risk.Moreover,the negative effect of D&O insurance on credit spreads is more pronounced for non-state-owned firms,those located in regions with a low level of marketization or that employ rating agencies with a bad reputation.Our study complements the literature on the credit spreads and corporate governance.

Credit Spreads,Probability of Default and Debt Risk Measurement of Prefectural Governments in China:2014-2017

In this paper,the concepts of probability of default,loss given default and expected loss in the internal ratings-based approach are introduced into the measurement of local government debt risk.Based on issuing interest rate and credit spreads of provincial government bonds,the default probability models of general debt and special debt are constructed and estimated,and the general and special debt risk of 333 prefectural governments in China from 2014 to 2017 are estimated respectively,and their regional distribution and changes are analyzed.The conclusions are as follows:Both general and special debt risk are different among regions.In terms of vertical changes in 2014-2017,debt risk has increased on the whole,but this increase has been driven more by the increase in the size of the debt,with no significant change in the probability of default,and the debt risk is concentrated in a small number of prefectural governments.The general debt risk accounts for about two-thirds of the total debt risk,the special debt risk accounts for about one-third,and this proportion structure is basically unchanged in 2014-2017.Based on the above conclusions,this paper puts forward corresponding policy recommendations for governance and control of local debt risk.

Confucian culture and corporate bond pricing

We investigate the effect of Confucian culture on corporate bond pricing.Using the birthplace data of 56,759 Jinshi in the Ming and Qing dynasties to construct a proxy of Confucian culture,we find a significantly negative relation between Confucian culture and bond pricing:the stronger the Confucian atmosphere of the corporate headquarters’location,the higher the bond rating and the lower the credit spread.This conclusion still holds after using the distance to the nearest ancient printing office as an instrumental variable and a series of robustness tests.The mechanism test shows that Confucian culture can improve the pricing efficiency of corporate bonds by fostering investors’trust,alleviating principal-agent problems and restraining bad corporate behaviors.Moreover,the impact of Confucian culture on corporate bond pricing is greater for firms located in regions with weak legal and other formal institutional constraints and for unlisted companies.Our study complements the literature on culture and bond pricing,and provides policy insights from traditional Chinese wisdom for improving the efficiency of financial markets.

The price of carbon risk:Evidence from China's bond market

Using a 2009–2019 sample of Chinese bond issuers,we examine the effect of carbon risk on bond financing costs.Relative to low carbon risk issuers,high carbon risk issuers have substantially larger bond credit spreads,mainly because their credit risk is greater and they invest the funds in non-green projects.This positive relationship is more pronounced for issuers with financing constraints,those not making a green transition and those in cities with stringent environmental regulations.We find a reversed effect during the COVID-19 pandemic.However,China’s carbon peak and carbon neutral goals have renewed the focus on carbon risk.Carbon risk also causes bond issuers to scale back production and negatively affects their likelihood of receiving long-term financial support.Our findings suggest that investors consider carbon risk and charge a corresponding risk premium.

Pandemic Bonds Issued by the Chinese Government Supported Post-Disaster Recovery from COVID-19 Pandemic

During the SARS-CoV-2(COIVD-19)outbreak,China repeatedly stressed that the response to the pandemic required action at all levels of government,including the issuance of Pandemic Bonds to help the country return to work and production.However,studies on the effectiveness of Pandemic Bonds during that period are rare.Starting with China’s national financial bond market data after COVID-19 in 2020,this paper focuses on the correlation between the Credit Spreads of the relevant bonds and the corresponding bond market rate of return,based on the Copula model.The empirical analysis is also carried out for multiple dimensional groupings such as enterprises,industries,provinces,and bond maturities.The results show that there is a significant positive correlation between the Credit Spreads of Pandemic Bonds and market returns.In addition,the market correlation is higher for Pandemic Bonds issued in Hubei Province,which is at the center of the 2020 pandemic,and the shorter the maturity of the Pandemic Bond issued,the stronger the relationship with market returns.Finally,this paper provides recommendations for financial regulators and policy makers to consider in their decisions on how to build a more resilient financial system under heavy economic,fiscal,and social pressures.