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Do political connections matter to bondholders? Evidence from China

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  • Po-Hsin Ho
  • Yu-Chun Wang
  • Chih-Yung Lin

Abstract

This article examines the association between political connections and the pricing of bonds in China. Political connections are associated with higher at-issue spreads on corporate bonds, implying that political connections do not ensure the alignment of interests between managers and bondholders. The adverse effects of political connections on borrowing costs are eliminated when the chairman and the CEO are politically connected. Evidence suggests that bondholders price new debt issuances by using the information about the political backgrounds of top managers. Moreover, the costs and benefits of political connections for bondholders vary with the extent of the connectedness of a firm.

Suggested Citation

  • Po-Hsin Ho & Yu-Chun Wang & Chih-Yung Lin, 2015. "Do political connections matter to bondholders? Evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 22(15), pages 1240-1245, October.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:15:p:1240-1245
    DOI: 10.1080/13504851.2015.1021452
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    Cited by:

    1. Amjad Naveed & Ghulam Shabbir, 2022. "Effect of Formal and Informal Institutional Indicators on Innovation Activities: An Empirical Analysis for a Global Sample," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 164(2), pages 665-691, November.
    2. Jun, Xiao & Ai, Junwei & Zheng, Lingfeng & Lu, Meiting & Wang, Jianye, 2024. "Impact of information technology and industrial development on corporate ESG practices: Evidence from a pilot program in China," Economic Modelling, Elsevier, vol. 139(C).
    3. Gao, Zhan & Quan, Xiaofeng & Xu, Xingmei, 2022. "Under watchful eyes: Analyst site visits and firm earnings management," International Review of Financial Analysis, Elsevier, vol. 83(C).
    4. Zheng, Jiayi & Chowdhury, Hasibul & Hossain, Md Safayat & Gupta, Kartick, 2023. "Tournament-based incentives and media sentiment," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).
    5. Brooks, Chris & Chen, Zhong & Zeng, Yeqin, 2018. "Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 187-216.
    6. Michelson, Noam, 2023. "The revolving door of former civil servants and firm value: A comprehensive approach," European Journal of Political Economy, Elsevier, vol. 79(C).
    7. Akyol, Ali C. & Qian, Yiming & Yu, Frank, 2023. "How do experienced analysts improve price efficiency?," Journal of Banking & Finance, Elsevier, vol. 149(C).
    8. Feng, Xunan & Johansson, Anders C., 2018. "Firm Ownership, Political Participation, and Access to Finance through Public Bond Offerings in China," Stockholm School of Economics Asia Working Paper Series 2018-50, Stockholm School of Economics, Stockholm China Economic Research Institute.
    9. Danlin Shen & Carl R. Chen & Xinyan Yan & Zhihong Yi, 2022. "Do credit market accessibility and legal protection shape corporate innovation?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(3), pages 719-754, September.
    10. Lu, Qiaoshan & Xiang, Cheng & Li, Bingxiang & Feng, Lixuan, 2023. "Non-controlling shareholders' governance participation and corporate misconduct: Evidence from voting in general meetings," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    11. Han, Mengrui & Ying, Qianwei & Huang, Li, 2023. "Firms’ delayed replies and investor confidence: Evidence from M&A comment letters in China," Finance Research Letters, Elsevier, vol. 56(C).

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