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Intra‐industry spill‐over effect of default: Evidence from the Chinese bond market

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  • Xiaolu Hu
  • Haoyi Luo
  • Zijin Xu
  • Jiang Li

Abstract

We investigate the intra‐industry spill‐over effect of defaults in the Chinese bond market by using a sample of public corporate debt securities for the period 2014–2018. We find that both industry portfolios and individual firms witness a strong contagion effect, which further spreads to the primary bond market, triggering a surge in the debt financing cost for default industries. Moreover, this contagion effect is stronger for low‐competition industries and regulated industries, as well as when a default happens to state‐owned enterprises. Better information access and higher bond liquidity alleviate the contagion effect, lending support to the information updates and liquidity dry‐up hypotheses.

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  • Xiaolu Hu & Haoyi Luo & Zijin Xu & Jiang Li, 2021. "Intra‐industry spill‐over effect of default: Evidence from the Chinese bond market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4703-4740, September.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:3:p:4703-4740
    DOI: 10.1111/acfi.12745
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