{"title":"Does reform policy of municipal bonds raise firm risk? A quasi-natural experiment from China","authors":"Dapeng Tang , Yiming Yang , Hao Zheng , Mebrahtu Tesfagebreal Gebrehans","doi":"10.1016/j.pacfin.2024.102424","DOIUrl":null,"url":null,"abstract":"<div><p>Does reform policy of municipal bonds increase firm risk? We address this question by examining the effects of the ‘Local Issuance and Local Repayment’ (LILR) reform policy launched by the Chinese central government on firm stock return volatility between 2009 and 2019. We find that the LILR reform policy increases the volatility of firms' stock returns. Possible explanations for the effect of reform policy are that it exacerbates firms' financial constraints and reduces the effectiveness of fiscal policy. Consistently, we find that the aggravating effect of reform policy is more pronounced in regions characterized by worse financial environment, worse fiscal condition, firms in growth and decline stages and in downstream and service and support industries. We provide empirical evidence from a Chinese quasi-natural experiment to address the long-term economic development issues of local government debts.</p></div>","PeriodicalId":48074,"journal":{"name":"Pacific-Basin Finance Journal","volume":null,"pages":null},"PeriodicalIF":4.8000,"publicationDate":"2024-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Pacific-Basin Finance Journal","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0927538X24001756","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Does reform policy of municipal bonds increase firm risk? We address this question by examining the effects of the ‘Local Issuance and Local Repayment’ (LILR) reform policy launched by the Chinese central government on firm stock return volatility between 2009 and 2019. We find that the LILR reform policy increases the volatility of firms' stock returns. Possible explanations for the effect of reform policy are that it exacerbates firms' financial constraints and reduces the effectiveness of fiscal policy. Consistently, we find that the aggravating effect of reform policy is more pronounced in regions characterized by worse financial environment, worse fiscal condition, firms in growth and decline stages and in downstream and service and support industries. We provide empirical evidence from a Chinese quasi-natural experiment to address the long-term economic development issues of local government debts.
期刊介绍:
The Pacific-Basin Finance Journal is aimed at providing a specialized forum for the publication of academic research on capital markets of the Asia-Pacific countries. Primary emphasis will be placed on the highest quality empirical and theoretical research in the following areas: • Market Micro-structure; • Investment and Portfolio Management; • Theories of Market Equilibrium; • Valuation of Financial and Real Assets; • Behavior of Asset Prices in Financial Sectors; • Normative Theory of Financial Management; • Capital Markets of Development; • Market Mechanisms.