The impacts of political uncertainty on public financing costs: evidence from anti-corruption investigations in China

Our study investigates the impact of local political uncertainty on public financing costs in China. By examining a series of unexpected turnovers of municipal government leaders, we find that the offering yield spreads of municipal corporate bonds increase by around 23 basis points shortly followin...

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Bibliographic Details
Published in:Public choice 2024, Vol.198 (1-2), p.69-91
Main Authors: Gao, Haoyu, Chen, Fukang, Ouyang, Yiling
Format: Article
Language:English
Subjects:
Corporate bonds
Corruption
Corruption in government
Costs
Economics
Economics and Finance
Financing
Government spending
Investors
Local government
Municipal bonds
Political Science
Politics
Public Finance
Public policy
Resilience
Securities prices
Uncertainty
Citations: Items that this one cites
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Summary:Our study investigates the impact of local political uncertainty on public financing costs in China. By examining a series of unexpected turnovers of municipal government leaders, we find that the offering yield spreads of municipal corporate bonds increase by around 23 basis points shortly following an anti-corruption investigation and reverse afterward. Indicators show that the anti-corruption investigation escalates the short-term uncertainty about government actions. The pricing effect is stronger for issuers with higher exposure to government policies or lower financial resilience. A transparent information environment alleviates the impact. In contrast, temporary government inefficiency does not explain the increase in yield spreads. Our findings suggest that political uncertainty is a determinant of public financing costs.
ISSN:0048-5829
1573-7101
DOI:10.1007/s11127-023-01111-7