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The impacts of political uncertainty on public financing costs: evidence from anti-corruption investigations in China

Author

Listed:
  • Haoyu Gao

    (Renmin University of China)

  • Fukang Chen

    (Renmin University of China)

  • Yiling Ouyang

    (Shanghai University of International Business and Economics)

Abstract

Our study investigates the impact of local political uncertainty on public financing costs in China. By examining a series of unexpected turnovers of municipal government leaders, we find that the offering yield spreads of municipal corporate bonds increase by around 23 basis points shortly following an anti-corruption investigation and reverse afterward. Indicators show that the anti-corruption investigation escalates the short-term uncertainty about government actions. The pricing effect is stronger for issuers with higher exposure to government policies or lower financial resilience. A transparent information environment alleviates the impact. In contrast, temporary government inefficiency does not explain the increase in yield spreads. Our findings suggest that political uncertainty is a determinant of public financing costs.

Suggested Citation

  • Haoyu Gao & Fukang Chen & Yiling Ouyang, 2024. "The impacts of political uncertainty on public financing costs: evidence from anti-corruption investigations in China," Public Choice, Springer, vol. 198(1), pages 69-91, January.
    • Handle: RePEc:kap:pubcho:v:198:y:2024:i:1:d:10.1007_s11127-023-01111-7
    DOI: 10.1007/s11127-023-01111-7
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    More about this item

    Keywords

    Political uncertainty; Anti-corruption; Public financing; Municipal corporate bonds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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