Are Bond Defaults with the Connivance of Credit Rating: An Analysis of China’s Bond Market

Abstract

We find that there is a same tendency between credit ratings and bond defaults by analyzing the status quo of defaults in Chinese market and credit ratings from 2015 to 2020. Caused by the interest conflicts of business models, ancillary business, public information ratings and horizontal competition, the quality of credit rating is badly impacted, thus resulting in the defaults. Therefore, we explain the reasons for such a tendency from interest conflict perspectives. We also offer some proposals to avoid default problems and improve the ratings provided by credit rating agencies, so as to promote the healthy development of bond market and preventing the systemic risks that bond market brings. Consequently, our study systematically concludes the interest conflict problems that lead to rating inflation and enriches related literature.