We investigate the impact of government environmental credit ratings on bond credit spreads based on a sample of Chinese A-share listed companies from 2014 to 2022. Empirical results demonstrate that a favourable environmental credit rating significantly reduces bond credit spreads, highlighting the incentivising effect of environmental credit ratings. Mechanism testing reveals that a good environmental credit rating diminishes information asymmetry and enhances an enterprise’s resource acquisition capabilities, reducing bond credit spreads. Furthermore, subgroup analyses suggest the reduction effect is more pronounced in enterprises with low debt and tax credit ratings.

We investigate the impact of government environmental credit ratings on bond credit spreads based on a sample of Chinese A-share listed companies from 2014 to 2022. Empirical results demonstrate that a favourable environmental credit rating significantly reduces bond credit spreads, highlighting the incentivising effect of environmental credit ratings. Mechanism testing reveals that a good environmental credit rating diminishes information asymmetry and enhances an enterprise’s resource acquisition capabilities, reducing bond credit spreads. Furthermore, subgroup analyses suggest the reduction effect is more pronounced in enterprises with low debt and tax credit ratings.

Regional financial development has greatly supported the rapid growth of Chinese municipal corporate bonds. This study introduces the concept of regional financial resources and constructs an informative measure of regional financial development by using principal component analysis (PCA), incorporating 13 indicators from three primary financial industries, including bank, security and insurance. Using a sample of municipal corporate bonds (MCBs) issued in China from 2009 to 2019, we find that an increase in regional financial development is associated with significant MCB credit spreads narrowing. This effect can be realized by improving fiscal stability and debt sustainability. Additionally, this narrowing varies among cities and provinces with different fiscal conditions and economic development. The results are also verified through a series of robustness tests. This study proposes possible policy suggestions for improving the Chinese fiscal management and MCBs market.

This paper examines the efficiency of prediction markets by studying the markets for catastrophe (CAT) bonds, compared to previous studies of prediction markets that used small-scale observational field data or experiments. We collect actual catastrophe loss data, match the defined trigger events of each CAT bond contract, and then employ an empirical pricing framework to obtain the excess CAT premiums in order to represent the market-based forecasts. Our results indeed show that the market-based forecasts have more significantly predictive content for future CAT losses than professional forecasts that use natural catastrophe risk models. Although the predictive information for CAT events is specialized and complex, our evidence supports that CAT bond markets are successful prediction markets that efficiently aggregate information about future CAT losses. Our results also highlight that actual CAT losses in future periods can explain the excess CAT bond spreads in the primary market and provide evidence of market efficiency when pricing CAT risk.

China's local government debt financing grows rapidly featuring surging chengtou bond issuance and risk exposure since the global financial crisis in 2008. The accumulation of local government debt poses systemic risks to China's fiscal and financial systems. Using weekly data from 2009 to 2014, this paper studies the joint dynamics and risk transmission mechanism between chengtou bond spreads and treasury yields under the framework of the extended no-arbitrage Nelson-Seigel term structure model, which guarantees the no-arbitrage relationship between treasury yields of different maturities. The results show that the chengtou bonds indeed exhibit considerable local risks and can lead to systemic risk of the treasury bonds, such that the treasury yields have significant component of risk premium due to chengtou risk. On the other hand, as the safest asset in China at present, the treasury yields with short-to-medium maturities decrease as a result of the “fly-to-safety" effect when the chengtou risk increases. Meanwhile, the dynamics of chengtou bond spreads reflect the market-oriented risk pricing by investors on credit and liquidity risks under limitations of the government implicit guarantee. Under this condition, it is the right timing to reasonably standardize and institutionalize the local government bond market with transparent market mechanism.