The Effect Of Corporate Governance On Debt Issuing Rates

In May 2005, the People’s Bank of China promulgated the "Administrative rules for Short-term Financing Bonds", marking the formal restart the short-term financing bond market. After nearly nine years of development, short-term financing bonds have become important debt financing instruments for the Chinese enterprises.In this paper, we use the data of the A-share companies listed on Shenzhen Stock Exchange which have issued short-term financing bonds in 2007-2013, trying to investigate the influence of corporate governance of Chinese listed companies on the issuing rates of short-term financing bonds from four aspects-ownership structure, board independence, managerial ownership and financial transparency and information disclosure. In addition, we construct a Corporate Governance Index (G-Index) based on the sample to examine the effect of the integrative governance of listed companies.The empirical analysis on single governance mechanisms indicates that corporate governance factors especially in the aspect of ownership structure do have certain influence on the issuing rates of short-term financing bonds. After controlling for the benchmark interest rates, residual credit risk (not including related corporate governance factors) and liquidity risk, the issuing rates of short-term financing bonds are positively and significantly related with the holdings of the largest shareholder, while negatively and significantly related with the holdings squared, institutional ownership and the state-owned nature. Increase of the proportion of independent directors does not contribute to reducing the issuing rates. And the role of other governance factors lack significance. While the test on the effect of integrative governance mechanism of listed companies shows that the quality of integrative governance of listed companies and the issuing rates of short-term financing bonds have significantly negative correlation. Although the effects of some single governance mechanisms on the issuing rates of short-term financing bonds (or on the creditors) is not clear cut, as an organic whole of various governance mechanisms that combined together and work together, the corporate governance of better quality can help to alleviate the agency problems creditors facing and reduce the issuing rates.These results suggest that, in the short-term financing bond market, investors are most concerned about the ownership structure aspect of corporate governance. And furthermore, improving the integrative governance can have positive effect on reducing the cost of debt financing of listed companies. These findings may provide certain reference for the short-term financing bonds issuers and other market participants and thus have important practical significance.