Do Privately Owned Enterprises in China Need Political Connections to Issue Corporate Bonds?

Abstract

This paper explores how political connections influence the likelihood of corporate bond issuance for privately owned enterprises (POEs) in China. Using a sample of Chinese POEs from 2007 to 2016, we show that politically connected POEs in China are more likely to issue corporate bonds as a debt financing instrument and at lower coupon rates (i.e., with lower refinancing costs). We also find that corporate bond-issuing POEs in China have weaker corporate governance. Overall, our results suggest that the corporate bond market in China is strongly influenced by political factors.