An Empirical Analysis Of Determinants Of Bond Recovery In China

With the normalization of bond defaults,the contradiction between the scale of defaulted bonds and the efficiency of default disposal has become increasingly evident.It is imperative to establish and improve a market oriented disposal mechanism for defaulted bonds.A key issue in defaulted bonds trading is valuation.As an important indicator for the valuation of defaulted bonds,the recovery rate has caused deep concern among financial institutions,regulators and investors.Firstly,using defaulted bond data from 2014 to 2020,this paper applies logistic fractional response model to an empirical study on the determinants of the defaulted bond recovery rate.The results are as follows.Among bond characteristics,bond trading market and coupon rate have a significant impact on the recovery rate.Among firm characteristics,pre-default credit rating,quick ratio(dummy variable)and the recovery ratio of cash to total assets have significantly positive effects on bond recovery rate.Firm scale and total debt ratio have significantly negative effects on bond recovery rate.Among macroeconomic characteristics,market-wide default number has significantly negative effects on bond recovery rate,and macro-economic climate index has significantly positive effects on bond recovery rate.Besides,Shibor may have positive effect on recovery rate,which is not robust.Secondly,concerning the problem that the financial and rating data of some enterprises are unavailable,this paper proposes the concept of recovery intensity,removes the relevant financial and rating variables,and adds registered capital and financial statement disclosure as a supplement to the missing corporate information.This paper then uses the ordered logit model to conduct an empirical study on the determinants of the defaulted bond recovery intensity.The findings are as follows.Except for the amount of bond issuance,which has a significant negative impact on recovery intensity,the impact of other variables in bond characteristics on recovery intensity is similar to that on recovery rate.Among firm characteristics,financial statements disclosure has significant positive effect on recovery intensity.Among macroeconomic characteristics,Shibor has no significant effect on the recovery intensity,and the effects of other variables on the recovery intensity are similar to that on the recovery rate.Finally,considering the uneven development among provinces in China,this paper further adds region-related variables to the above two models.This paper finds that when financial and rating information of firm is complete,regional differences have no significant impact on recovery rates.However,when such information is unavailable,regional variables can provide additional information.To be more specific,the marketization process and financial expenditure of the province where the enterprise is located have a significant positive impact on the recovery intensity,while the proportion of the added value of the tertiary industry has a significant negative impact.