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.

The macroeconomic risk associated with climate change potentially results in a risk premium on asset prices. Using a sample of 11,468 Chinese quasi-municipal bonds from 2014-2021 in 267 cities, this research investigates the impact of climate risk on the credit spreads of quasi-municipal bonds. We employ principal component analysis (PCA) to construct a climate risk index and find that climate risk significantly increases credit spreads by increasing the local government fiscal gap and debt burden. The effect of climate risk is more remarkable for bonds that have shorter maturity and lower corporate ratings, issued by smaller city investment companies and corporations located in regions with stronger environmental regulation, stronger climate risk perception, and better green financial development. A significant relationship is also observed in the eastern regions but not the western regions. This study broadens the scope of quasi-municipal bond credit spread determinants from traditional financial to climate indicators.

How does labor risk affect corporate’s bond financing? Using the unique institutional feature of government regulations in China, we provide robust evidence that firms with a larger employment size have significantly better access to bond credit. This effect is more pronounced in times of local labor market deterioration or economic slowdown, for low-skill intensive industries, or in places with career-driven government officials. Our results are not driven by differential financial constraints or information frictions. We further show that the employment bias allocates bond credit towards under-performing large employers and the performance-enhancing benefits from bond issuance diminishes with employment size.

In this paper, I build a continuous-time macro-finance model in which firms can access both bond credit and bank credit. The model captures the simple idea that the presence of bond financing increases the price elasticity of demand for bank loans. I find that the optimal capital adequacy ratio is quantitatively sensitive to the presence of bond financing and that models would overstate the banking sector's recovery rate if they omit bond financing. Furthermore, the model highlights that an economy's optimal capital requirement highly depends on the efficiency of its bankruptcy procedure and the risk profile of its real sector.

This paper investigates a two-factor affine model for the credit spreads on corporate bonds. The Þrst factor can be interpreted as the level of the spread, and the second factor is the volatility of the spread. The riskless interest rate is modeled using a standard two-factor affine model, thus leading to a four-factor model for corporate yields. This approach allows us to model the volatility of corporate credit spreads as stochastic, and also allows us to capture higher moments of credit spreads. We use an extended Kalman Þlter approach to estimate our model on corporate bond prices for 108 Þrms. The model is found to be successful at Þtting actual corporate bond credit spreads, resulting in a signiÞcantly lower root mean square error (RMSE) than a standard alternative model in both in-sample and out-of-sample analyses. In addition,key properties of actual credit spreads are better captured by the model.