Research On The Impact Of Local Government Bond Issuance On Corporate Debt

Enterprise debt financing is an important part of modern enterprise operation and management.Whether enterprises can obtain stable and timely capital sources is crucial for future operation and development.The COVID-19 pandemic has had a severe impact on enterprises’ production and operation,leading to a compression of their profit margins and a weakening of their solvency.In the bond market,investors for safety,risk aversion to investment products intensified,reduced risk appetite,and thus reduced investment in general corporate bonds.As an important financing tool for local government infrastructure construction,local government financing vehicle bonds are still playing an important role in driving economic development in the post-epidemic period.Local government financing vehicle bonds are generally favored by investors in the market because of their better redemption and implicit guarantee from the government.From the perspective of investors’ preference for safe assets,this paper finds that the issuance of urban investment bonds will have a negative impact on corporate bond financing.Existing literature mainly studies the relationship between local government debt and enterprise debt from the perspective of resource competition of financial institutions,especially the influence on non-state-owned enterprises,focusing on the influence of local government debt on indirect financing of enterprises.From the perspective of whether local government bond issuance can meet investors’ demand for class-safe assets,this paper studies its impact on corporate financing,especially corporate bonds of different credit levels,thus supplementing the research perspective and findings of the relationship between local government debt and corporate debt in existing literature.Based on this,the research content of this paper is as follows:Firstly,through theoretical analysis,this paper expounds the effect of investors’preference for safe assets mechanism on bonds issued by central government,local government and enterprise sector,and draws two conclusions:First,there is a negative correlation between the safe assets issued by the central government debt and the safe assets provided by other departments;second,the issuance of government debt will crowd out the bonds issued by enterprises with similar safety characteristics.Secondly,this paper uses the method of examining the change of the supply of safe assets in the private sector in the literature to study the characteristics of the quasi-safe assets of local government financing vehicle bonds by using the influence of the change of the supply of China’s national debt on the supply of urban investment bonds,and empirically tests the characteristics of the quasi-safe assets of urban investment bonds.Specifically,the urban investment bonds issued for the purpose of project financing and the urban investment bonds issued by public offering are significantly affected by the supply of national debt.However,the influence of national debt on the urban investment bonds issued for the purpose of enterprise operation and loan repayment,and the urban investment bonds issued by private equity is not significant.When the land transaction income of local government is higher and the implicit guarantee level of URBAN investment bond is higher,the impact of urban investment bond is more significant.Then,this paper uses the company-level data from 2008 to 2019 to study the impact of urban investment bonds on AAA,AA and below corporate bonds and bank loan financing.Urban investment bonds with the characteristics of quasi-safe assets have a significant negative impact on AAA corporate bonds,while non-project financing,private placement and high interest rate urban investment bonds have no significant impact on AAA corporate bonds.Local government financing vehicle bonds with the characteristics of quasi-safe assets have no significant impact on corporate bonds with credit grades below AAA,and only urban investment bonds with a high interest rate spread have a significant negative impact on corporate bonds with lower credit grades.Urban investment bonds have a significant impact on bank financing of non-state-owned enterprises,but the impact of urban investment bonds with the characteristics of quasi-safe assets on debt financing of non-state-owned enterprises is relatively low.When enterprises improve the level of commercial credit and profit,the debt financing of enterprises will be less affected by the supply shock of local government financing vehicle bonds.Finally,this paper uses market-level data from 2018 to 2021 to study the impact of COVID-19 on the relationship between local government financing vehicle bonds and corporate bonds.COVID-19 has made investors more inclined to invest in safer assets.We find that urban investment bonds with safe assets have a stronger impact on AAA corporate bonds.This paper studies the relationship between local government bond issuance and enterprise debt from the perspective of market investors’ preference for safe assets and provides a new mechanism to study the influence of local government debt on enterprise debt.On this basis,policy suggestions are put forward:First,strengthen the safety management of local government debt and urban investment bonds,improve the quality of urban investment bonds,and give correct guidance to investors’investment sentiment.Secondly,enterprises should strengthen endogenous financing,improve their operating ability and debt paying ability,so that they can better obtain external financing and improve their ability to resist risks in the future.Finally,strengthen bond market management,enrich bond investment varieties,make it meet the investment needs of different investors.