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Business groups and corporate bond costs: Evidence from China

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  • Cheng, Liubing
  • Chen, Yanyan
  • Zhang, Yan

Abstract

We examine the effect of business groups on corporate bond costs. Using a sample of corporate bonds issued by Chinese privately owned firms from 2007 to 2019, we show that business group-affiliated firms issue bonds at higher yield spreads than independent firms. The results hold after addressing the endogeneity issues of self-selection, selection bias, and financing decisions. We do not find that corporate governance plays a role in mitigating the negative impact of business groups on bond costs. Business groups negatively affect bond costs through tunneling and risk spillover channels, whereas financing advantage is not a transmission channel.

Suggested Citation

  • Cheng, Liubing & Chen, Yanyan & Zhang, Yan, 2022. "Business groups and corporate bond costs: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x2200141x
    DOI: 10.1016/j.pacfin.2022.101846
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