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Markets price politicians: Evidence from China’s municipal bond markets

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  • Wang, He
  • Yao, Yang
  • Zhou, Yue

Abstract

This paper studies China’s municipal bond markets to find whether mayors’ abilities to grow the economy is priced by investors. Studying the primary market, we find that mayors’ abilities increases investors’ demand for municipal bonds. As a result, a one standard deviation increase in a mayor’s ability reduces investors’ demand yields by 11.4 basis points. A study of the secondary market finds similar results. Ability has stronger impacts on bonds with longer terms, issued by issuers with lower ratings or issued in more competitive markets. Ability also has stronger impacts in the first year of a mayor’s tenure and on bonds issued by economically or financially less developed cities.

Suggested Citation

  • Wang, He & Yao, Yang & Zhou, Yue, 2022. "Markets price politicians: Evidence from China’s municipal bond markets," Journal of Economics and Business, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:jebusi:v:122:y:2022:i:c:s014861952200039x
    DOI: 10.1016/j.jeconbus.2022.106083
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    References listed on IDEAS

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    More about this item

    Keywords

    Political human capital; Municipal bonds; Executive constraints;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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