Does credit rating agency reputation matter in China's local government bond market?

ABSTRACT: All issuers in China's local government bond market, which is nascent but growing rapidly, have the same AAA ratings. However, we provide evidence that the credit rating agency's reputation can certify differences in ratings' reliability and further impact bond pricing. On the basis of a sample of 7941 local government bonds issued from 2015 to 2021, results show that risk premium is significantly low for bonds rated by prestigious credit rating agencies, which means that issuers can save borrowing costs. Moreover, local governments regarded as less transparent in fiscal information disclosure enjoy more cost savings for their bonds by hiring more reputable agencies. Regression results are affirmed with the Heckman two-stage model, difference-in-differences regression, and machine learning

SUBMITTER: Xie C 

PROVIDER: S-EPMC9488777 | biostudies-literature | 2022

REPOSITORIES: biostudies-literature