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Government's implicit guarantee and the credit spread of the quasi-municipal bonds

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  • Zhang, Ke

Abstract

Breaking the rigid repayment of municipal investment bonds (MIBs) is essentially releasing the implicit guarantee of local governments. We analyze the effects of implicit government guarantees on MIBs’ credit spreads and find that regional economic strength, local government's financial strength, and fiscal balance have significant effects on the credit spreads of MIBs; the effects of implicit government guarantee on the credit spreads of MIBs depend on the regional economic development status; the effects of implicit government guarantee on the credit spreads are significant across different MIBs issued by public welfare institutions, quasi-public welfare institutions, and comprehensive municipal investment companies.

Suggested Citation

  • Zhang, Ke, 2023. "Government's implicit guarantee and the credit spread of the quasi-municipal bonds," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002337
    DOI: 10.1016/j.frl.2023.103861
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    References listed on IDEAS

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    Cited by:

    1. Choi, Hae Mi & Gupta-Mukherjee, Swasti, 2024. "Public sector unions and municipal debt," Global Finance Journal, Elsevier, vol. 60(C).
    2. Wan, Rui & Fan, Wencheng & Wang, Xiaoping, 2024. "Local government financing vehicle restructuring, implicit government guarantees and debt financing costs: Evidence from the Chinese municipal corporate bond market," Economic Systems, Elsevier, vol. 48(2).
    3. Wang, Yan & Tian, Xu, 2023. "Underwriter strength and credit spread of corporate bond issuance," Finance Research Letters, Elsevier, vol. 58(PC).
    4. Ren, Zhaoyue & Xiong, Yang & Huang, Yongjian, 2024. "Local officials’ sentiment and government financing cost: Evidence from Chengtou bonds in China," Finance Research Letters, Elsevier, vol. 63(C).

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