Third-party Guarantee Is Effective In Reducing Bond Financing Costs?

With the expansion of the debt scale of local government financing platform,the healthy development of the issuance market and the default worries of debt behavior have drawn wide attention from market participants,policy implementers and the whole society.In this paper,we take the city investment bonds issued by China local financing platform company from 2009 to 2016 as the research samples and examine the "dominant guarantee" of the city bonds and the "hidden guarantee" of the local government behind the impact on the credit rating and issuance pricing of the city bonds.By constructing the proper econometrics model,some important research results have been obtained:Firstly,explicit guarantees can significantly improve the CBR's credit rating and debt credit ratings,but have no significant effect on issue pricing.This result is in line with the "issuer payment mechanism" existing in the current rating markets at home and abroad.The rating agencies have the incentive and tendency to pay issuers to raise their ratings.Market investors can only rely on the bond's property information and fundamentals information to determine the value of the bond investment.Secondly,in addition to the explicit guarantee,the rating and issue pricing of bonds also include the implicit guarantee factors of local governments hidden behind the city bonds.The local economic development and the financial strength of local governments will affect the local government's ability to guarantee and the willingness to guarantee,thus affecting the issue price of the city bonds.Thirdly,through the study of guarantee group and non-guarantee,it is found that the implicit guarantee represented by the local government's financial power will have different effect.The implicit guarantee is more effective for the unsecured bond group.The research results of this paper have positive empirical reference value for China's bond market reform and information transparency construction.