The impacts of political uncertainty on public financing costs evidence from anti-corruption investigations in China Haoyu Gao, Fukang Chen, Yiling Ouyang
By: Gao, Haoyu
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Contributor(s): Chen, Fukang | Ouyang, Yiling.
Material type: 
ArticleSubject(s): HACIENDAS LOCALES | POLITICAS PUBLICAS | INCERTIDUMBRE | CORRUPCION | CHINA
In:
Public Choice v. 198, n. 1-2, January 2024, p. 69-91Summary: 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.
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| OP 1443/2023/197/3/4 Public Choice | OP 1443/2024/1/2-1 More human than human | OP 1443/2024/1/2-2 Democracy and fiscal-policy response to COVID-19 | OP 1443/2024/1/2-3 The impacts of political uncertainty on public financing costs | OP 1443/2024/1/2-4 Economic growth before and after the fiscal stimulus of 2008–2009 | OP 1443/2024/198/1/2 Public Choice | OP 1443/2024/198/3/4 Public Choice |
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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.
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