The Effect Of Local Government In The Rating And Pricing Process Of Urban Investment Bonds

In the Chinese bond market,the particularity of urban investment bonds is that their issuance is mainly to meet the huge demand for infrastructure construction in the urbanization construction of local governments.The issuers of urban investment bonds usually have close relationship with local governments.Exploring the connection between pricing process in the issuance of urban investment bonds and local governments fiscal performance has become an important issue in understanding the investment decisions and development prospects of urban investment bonds.Local government is not the direct issuer of urban investment bonds,but the functions of urban investment bonds are in municipal construction and infrastructure construction,which objectively meets the financing needs of local governments.The investors and financing institutions generally believe that urban investment bonds have government beliefs and government implicit guarantee which is both reflected during the rating and pricing process of urban investment bond.Based on the perspective of implicit guarantee,this article reviews the current circumstance,features,and transformation trends of Chinese urban investment bond market.What's more,it theoretically illustrates the highly important role of local government implicit guarantee and the significant effect of local government financial situation to urban investment bonds.In addition,this article takes the data of Chinese urban investment bonds issued from 2009 to 2018 as a sample period to conduct empirical research.The regression concludes the ratings and offering spreads of urban investment bonds to examine the local government's implicit guarantee effect.Firstly,the research finds that the presence or absence of third-party guarantee in urban investment bond has a significant effect on the rating of urban investment bonds,however,no significant effect on the issuing price,which suggests the existence of government belief.Secondly,the implicit guarantee of local governments can be explained in both the willingness to guarantee and the ability to guarantee.The willingness to guarantee is mainly the degree of local government support for the local government financing platforms.The guarantee ability is mainly about fiscal revenue of local government.Both the willingness to guarantee and the ability to guarantee of local government could affect urban investment bonds rating and pricing significantly.Thirdly,the research shows that the characteristics of local governments address much more significant impact on those urban investment bonds without third-party warrant terms and the urban investment bonds issued by investment platforms,indicating that urban investment bonds without third-party guarantee and investment platform issuance of urban investment bonds are more dependent on government credit and implicit guarantee from local government.Given the empirical study presented above,from a practical point of view,the conclusions of this paper attempt to conduct policy suggestion for improving the rating system of Chinese urban investment bond market,reshaping the trading mechanism of urban investment bonds and clarifying the relationship between local governments and urban investment platforms.