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Exploring the correlation between financial leverage and corporate bond credit spreads

Author

Listed:
  • Lin, Zi
  • Yang, Qing
  • Chen, Shasha

Abstract

This research utilizes data from Chinese listed companies spanning the years 2012 to 2022 to conduct an in-depth examination of the interplay between financial leverage and corporate bond credit spreads. The findings reveal a nuanced relationship: at lower levels of financial leverage, the two exhibit a negative correlation, whereas at higher levels, they demonstrate a positive correlation. Furthermore, it is observed that robust internal control mechanisms and effective equity incentive programs can markedly mitigate the adverse effects of financial leverage on bond credit spreads. These insights offer crucial guidance for firms seeking to optimize their financial structures and mitigate credit risks.

Suggested Citation

  • Lin, Zi & Yang, Qing & Chen, Shasha, 2025. "Exploring the correlation between financial leverage and corporate bond credit spreads," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001205
    DOI: 10.1016/j.frl.2025.106855
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