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How Can Government Support Affect Behaviors of Investors and Rating Agencies in a Corporate Bond Market? Evidence from China’s Corporate Bond Market

ABSTRACT This study explores the relationship between government support and the behaviors of participants in a corporate bond market. The “implicit guarantee” of bonds is measured by two proxies: state-owned ownership and prestigious underwriter reputation. Bonds with these features have lower credit spreads and higher credit ratings. Since March 4, 2014—the first bond default event—evidence suggests that the effect of state-owned ownership on credit spreads and ratings is still pronounced, but the effect of underwriters’ reputation has weakened. Our findings provide supporting evidence for the effectiveness of marketization in China’s corporate bond market.