BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 29/2011:
Choice of Corporate Debt in China: The Role of State Ownership
Laurent Weill ()
and Pierre Pessarossi
Abstract: We analyze the determinants of debt choices for Chinese
firms between bonds and syndicated loans. This issue helps appraise the
weak development of bond market in China. We test if flotation costs,
asymmetries of information, and renegotiation and liquidation costs
influence the choice of debt in line with former studies in the context of
regulatory interference in the bond market. We check the role of central
state ownership on debt choice in order to assess to what extent corporate
debt choices are politically or economically driven. We test these
hypotheses on a dataset of 220 listed Chinese firms over the period
2006–2010. We find evidence in favour of the influence of central
government ownership on the financing choices of firms it owns, as central
state-owned firms are more likely to issue bonds. We also observe limited
support for the premise that this influence is stronger for central
state-owned firms located closer to the capital. Furthermore, we identify
that these companies tend to borrow uniquely on the bond market rather than
tapping both debt markets. We provide evidence in favour of the flotation
costs hypothesis, but provide mixed evidence for the information asymmetry
hypothesis and rather reject the renegotiation and liquidation hypothesis.
All in all, our findings show that financial factors play a much more minor
role in corporate debt choices compared to other countries, whereas state
ownership remain a key determinant of preferring the bond market.
Keywords: corporate bonds; syndicated loans; debt choice; China; state ownership; (follow links to similar papers)
JEL-Codes: G21; P34; (follow links to similar papers)
39 pages, November 11, 2011
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