The Research On The Effects Of Accounting Information Quality On The Pricing Of Corporate Bonds

After the 1997 Asian financial crisis,most governments had recognized the harm of excessively finance through bank loans.The exclusive indirect financing system would greatly threaten the domestic or even regional financial stability and economic growth,which drove governments to attach more importance to the development of bond market.Among various kinds of bonds,corporate bond is one of the most important categories.Increasing the market share of corporate bonds in direct financing has been a long-term strategic object of Chinese government.The 2015 version "Regulations on the Issuance and Trade of Corporate Bonds" released by China Securities Regulatory Commission introduced a strand of reforms,which greatly inspired borrowers' and investors' interests in corporate bond market.At the end of 2016,the issuance scale of corporate bonds has surpassed the sum of enterprise bonds and medium term note,which makes it become the first choice of long-term bond financing.As one of the most important information sources that investors can directly access,accounting information quality can significantly affect the information asymmetry between investors and firms.Higher accounting information quality is important for investors to accurately estimate firm's real value and further protect their own interests.In this dissertation,we want to investigate the role of accounting information quality in the corporate bond market of China.We construct our research sample based on the corporate bonds issued during the period 2007-2015.With the guidance of agency theory and information asymmetry theory,we specifically examine the relationship between accounting information quality and bond credit ratings,the costs of corporate bonds as well as bond underpricing by using multivariate regressions.First,this dissertation investigates the impact of accounting information quality on the bond credit ratings.We find that firms with high information quality are associated with higher initial credit ratings.Reputable rating agencies can discern firms' earnings management behaviors and give lower credit ratings to firms with lower accounting information quality.This association is robust to a series of robustness checks including the use of treatment effect model and the inclusion of some possibly omitted variables.In the additional analyses,we find that the positive relationship between accounting information quality and bond credit ratings is more pronounced in state-owned firms,and those firms which are not audited by Big4.Second,this dissertation examines the relationship between accounting information quality and the costs of corporate bonds in China.We find that firms with high information quality are associated with lower costs of corporate bonds.Our findings are robust to endogeneity issues arising from reverse causality,omitted variable bias,and the interdependencies between price and non-price terms.In the additional analyses,we find that the negative relationship between accounting information quality and the costs of corporate bonds is stronger in state-owned firms and non cross-listed firms.We also find that hiring reputable underwriters significantly mitigates the influence of accounting information quality.Those findings indicate that the negative association between accounting information quality and the costs of corporate bonds is more pronounced in firms with higher information asymmetry.Regarding non-price terms,further analysis also shows that low accounting information quality firm is associated with more restrictive covenants.This finding is consistent with prior literature,which concludes that restrictive covenants are used more frequently in worse information environments.Third,this dissertation also investigates the impact of accounting information quality on the underpricing of corporate bonds in China.We find that accounting information quality is negatively associated with the magnitude of bond underpricing.In addition,we investigate how underwriter reputation and auditor reputation affect the association of accounting information quality with bond underpricing.The result shows that the impact of low accounting information quality on underpricing is partially offset by hiring reputable underwriters or auditors.This association is robust to a series of robustness checks including the use of treatment effect model and the inclusion of some possibly omitted variables.Using path analysis,we know that there exists two paths,including direct path and indirect path which can affect the association between accounting information quality and bond underpricing.Our path analysis results show that high-quality underwriters have a significant mediation effect on the relationship between accounting information quality and bond underpricing;approximately 90%of the total effect of accounting information quality on underpricing is attributable to the direct path;only approximately 10%of the total effect is attributable to the indirect path through reputable underwriters.The results suggest the predominant role of accounting information quality in determining bond underpricing and highlight the importance of information quality in bond financing.In the additional research,we investigate whether our conclusions still hold based on the secondary bond offering subsample.The result shows that the impact of accounting information quality on the bond underpricing is quite limited for the secondary bond offering subsample.Using subsample regression,further analysis also shows that the impact of accounting information quality on corporate bond underpricing is more pronounced in firms located in regions with lower marketization level.