Capital Account Liberalization and International Corporate Bond Issuance: Transaction-level Evidence from China

This paper provides transaction-level evidence about the impact of capital account liberalization on firms' bond issuance in the international financial market. Using bond issuance data for firms headquartered in China between 2014 and 2018, we showed that domestic private firms issued more bonds abroad than foreign-invested enterprises after restrictions were largely relaxed, controlling for possible confounding shocks such as monetary policy, local credit market shocks, US interest rate, carry trade, and global uncertainty shocks measured by the Chicago Board Option Exchange's Volatility Index. We found that domestic firms did not increase the overall volume of bond issuance but just had a higher portion of international bond issuance. We also found that domestic firms with higher tangible asset ratios tended to issue more bonds abroad. Our results suggest that targeted liberalization policy could effectively stimulate firms to issue bonds abroad. Policymakers need to monitor closely firms that issue more bonds abroad and thus have greater exposure to global shocks, incorporate these financial risks into policy design, and safeguard financial stability more effectively.