Footnote:
In: Zhang, X. Q., and Wang, Z. W., 2020, Marketization vs. Market Chase: Insights from Implicit Government Guarantees, International Review of Economics and Finance, Vol.69, pp435-455
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 3, 2019 erstellt
Description:
Local Government Financing Vehicles (LGFVs) and state-owned enterprises (SOEs) provide implicit guarantee during the issuing of bonds, thereby reducing their funding cost. The credit spreads are lower when issued by a LGFV with a higher administrative level. This means that implicit guarantee is also strengthened with government centralization. We also explain the anomaly of municipal corporate bonds (MCBs)’ spreads decrease after a marketization regulation of removing implicit guarantees. This paper provides strong evidence that the market will chase implicit guarantee when default wave comes even under tight government regulations