ISSN: 2225-8329
Open access
With the incidents of corporate bond defaults continually emerging, the role of internal corporate governance in bond market has received more attention. In the research, 3265 corporate bonds issued by A-share listed companies in China from 2011 to 2020 are as research object and the dynamic panel one-step system Generalized Method of Moments is adopted to estimate the impact of four types of internal corporate governance mechanism on the credit spreads of corporate bonds. Regarding ownership structure, ownership concentration and state-owned enterprises have significantly negative relationship with credit spreads of corporate bonds. Concerning board governance, board size and CEO duality have significantly positive relationship with credit spreads, but the percentage of independent directors has opposite situation. Executive monetary compensation and information disclosure quality are significantly negative associated with bond credit spreads. The findings not only enrich the economic consequences of internal corporate governance mechanism and the factors affecting the cost of bond financing, but also provide implications for investors, firms and regulators in bond market and promote sustainable development of bond markets in China.
Afonso, A., & Kazemi, M. (2018). Sovereign bond yield spreads spillovers in the EMU. REM Working Paper, 052. https://doi.org/10.2139/ssrn.3271374
Ahmed, K., Hossain, M., & Adams, M. B. (2006). The effects of board composition and board size on the informativeness of annual accounting earnings. Corporate Governance: An International Review, 14(5), 418–431. https://doi.org/10.1111/j.1467-8683.2006.00515.x
Akerlof, G. (1970). The market for ‘Lemons’: quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84, 488-500.
Bai, C. E., Liu, Q., Lu, Z., Song, M., & Zhang, J.X. (2005). An empirical study of the governance structure of Chinese listed companies. Economic Research Journal, 02, 81-91.
Ballester, L., González-Urteaga, A. & Martínezc, B. (2020). The role of internal corporate governance mechanisms on default risk: A systematic review for different institutional settings. Research in International Business and Finance,54, 1-29. https://doi.org/10.1016/j.ribaf.2020.101293
Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: the role of institutional investors and outside directors. Journal of Business, 76(3):455-476?http://doi.org/10.1086/344114
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.
Boateng, A., Liu, Y., & Brahma, S. (2019). Politically connected boards, ownership structure, and credit risk: Evidence from Chinese commercial banks. Research in International Business and Finance, 47, 162-173. https://doi.org/10.1016/j.ribaf.2018.07.008
Bolton, P., Mehran, H., & Shapiro, J. (2015). Executive compensation and risk taking. Review of Finance, 19(6), 2139-2181. https://doi.org/10.1093/rof/rfu049
Bradley, D., Pantzalis, C., & Yuan, X. (2016). Policy risk, corporate political strategies, and the cost of debt. Journal of Corporate Finance, 40, 254–275. https://doi.org/10.1016/j.jcorpfin.2016.08.001
Chatterjee, M., & Bhattacharjee, T. (2020). Ownership concentration, innovation and firm performance: empirical study in Indian technology SME context. South Asian Journal of Business Studies. https://doi.org/10.1108/sajbs-10-2019-0185
Chiang, S. M., Chung, H., & Huang, C. M. (2013). A note on board characteristics, ownership structure, and default risk in Taiwan. Accounting & Finance, 55(1), 57-74. https://doi.org/10.1111/acfi.12045
Douglas, A. V., Huang, A. G., & Vetzal, K. R. (2016). Cash flow volatility and corporate bond yield spreads. Review of Quantitative Finance and Accounting, 46, 417-458.https://doi.org/10.1007/s11156-014-0474-0
Gong, G., Xu, S., & Gong, X. (2017). Bond covenants and the cost of debt: Evidence from China. Emerging Markets Finance and Trade, 53(3), 587-610.
Guru, B. K., & Yadav, I. S. (2019). Financial development and economic growth: panel evidence from BRICS. Journal of Economics, Finance and Administrative Science, 24(47), 113–126. https://doi.org/10.1108/jefas-12-2017-0125
Hsu, P. H., Lee, H. H., Liu, A. Z., & Zhang, Z. (2015). Corporate innovation, default risk, and bond pricing. Journal of Corporate Finance, 35, 329-344?
Hu, X., Luo, H., Xu, Z., & Li, J. (2021). Intra?industry spill?over effect of default: Evidence from the Chinese bond market. Accounting & Finance, 61(3), 4703-4740. https://doi.org/10.1111/acfi.12745
Jantadej, K., & Wattanatorn, W. (2020). The effect of corporate governance on the cost of debt: Evidence from Thailand. The Journal of Asian Finance, Economics, and Business, 7(9), 283-291. https://doi.org/10.13106/jafeb.2020.vol7.no9.283
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership concentration. Journal of financial economics, 3(4): 305-360.
Kabir, R., Li, H., & Veld-Merkoulova, Y. V. (2013). Executive compensation and the cost of debt. Journal of banking & finance, 37(8), 2893-2907. https://doi.org/10.1016/j.jbankfin.2013.04.020
Kennedy,P.(2008). A guide to econometrics. 6th ed.New Jersey:Wiley-Blackwell.
Khlif, H., Samaha, K., & Azzam, I. (2015). Disclosure, ownership structure, earnings announcement lag and cost of equity capital in emerging markets: The case of the Egyptian stock exchange. Journal of Applied Accounting Research, 16(1), 28–57. https://doi.org/10.1108/jaar-06-2012-0046
Khuong, N. V., Huong, N. T. L., Chau, V. B., Mai, N. T. H., Thi, N. L. C., & Linh, C. T. H. (2021). The impact of audit opinion on cost of debt: Evidence from Vietnam. Economics and Business Administration, 11(1), 83–93. https://doi.org/10.46223/hcmcoujs.econ.en.11.1.1067.2021
Lewellyn, K. B., & Muller-Kahle, M. I. (2012). CEO power and risk taking: Evidence from the subprime lending industry. Corporate Governance: An International Review, 20(3), 289-307. https://doi.org/10.1111/j.1467-8683.2011.00903.x
Lin, W. F., Zhong, H. Y., & Li, Q. Y. (2018). The pros and cons of executive experience?Empirical evidence from the bond market. Financial Research, 6, 171-188.
Liu, L., Luo, D., & Han, L. (2019a). Default risk, state ownership and the cross-section of stock returns: evidence from China. Review of Quantitative Finance and Accounting, 53(4), 933-966.
Liu, Y., Brahma, S., & Boateng, A. (2019b). Impact of ownership structure and ownership concentration on credit risk of Chinese commercial banks. International Journal of Managerial Finance, 16(2), 253–272. https://doi.org/10.1108/ijmf-03-2019-0094
Li, Y., Zhang, X., Yao, T., Sake, A., Liu, X., & Peng, N. (2021). The developing trends and driving factors of environmental information disclosure in China. Journal of Environmental Management, 288, 112386. https://doi.org/10.1016/j.jenvman.2021.112386
Lu, J., & Boateng, A. (2018). Board composition, monitoring and credit risk: evidence from the UK banking industry. Review of Quantitative Finance and Accounting, 51(4), 1107-1128. https://doi.org/10.1007/s11156-017-0698-x
Lu, S. L., & Lee, K. J. (2021). Investigating the determinants of credit spread using a markov regime-switching model: evidence from banks in Taiwan. Sustainability, 13(17), 9535. https://doi.org/10.3390/su13179535
Makhlouf, M. H., Laili, N. H., Ramli, N. A., Al-Sufy, F., & Basah, M. Y. (2018). Board of directors, firm performance and the moderating role of family control in Jordan. Academy of Accounting and Financial Studies Journal, 22(5), 1-15.
Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rate. Journal of Finance, 29(2), 449-470. https://doi.org/10.2307/2978814
Orozco, L. A., Vargas, J., & Galindo-Dorado, R. (2018). Trends on the relationship between board size and financial and reputational corporate performance: The Colombian case. European Journal of Management and Business Economics, 27(2), 183–197. https://doi.org/10.1108/ejmbe-02-2018-0029
Puni, A., & Anlesinya, A. (2020). Corporate governance mechanisms and firm performance in a developing country. International Journal of Law and Management, 62(2), 147-169.
Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics, 71(1), 135-158. https://doi.org/10.1111/j.1468-0084.2008.00542.x
Sauerwald, S. & Peng, M. W. (2013). Informal institutions, shareholder coalitions, and principal–principal conflicts. Asia Pacific Journal of Management, 30(03):853-870. http://doi.org/10.1007/s10490-012-9312-x
Sayanolu, W. A. (2020). Corporate governance and the cost of debt: Evidence from food and beverage companies in Nigeria. Available at SSRN 3543962. https://doi.org/10.2139/ssrn.3543962
Shahab, Y., Ntim, C. G., Ullah, F., Yugang, C., & Ye, Z. (2020). CEO power and stock price crash risk in China: Do female directors’ critical mass and ownership structure matter? International Review of Financial Analysis, 68, 101457. https://doi.org/10.1016/j.irfa.2020.101457
Sheikh, M. F., Shah, S. Z. A., & Akbar, S. (2017). Firm performance, corporate governance and executive compensation in Pakistan. Applied Economics, 50(18), 2012–2027. https://doi.org/10.1080/00036846.2017.1386277
Tanaka, T. (2016). How do managerial incentives affect the maturity structure of corporate public debt?. Pacific-Basin Finance Journal, 40, 130-146. https://doi.org/10.2139/ssrn.2724360
Teti, E., Dell’Acqua, A., Etro, L., & Resmini, F. (2016). Corporate governance and cost of equity: empirical evidence from Latin American companies. Corporate Governance: The International Journal of Business in Society, 16(5), 831–848. https://doi.org/10.1108/cg-02-2016-0028
Waheed, A., & Malik, Q. A. (2019). Board characteristics, ownership concentration and firms’ performance: A contingent theoretical based approach. South Asian Journal of Business Studies, 8(2), 146–165. https://doi.org/10.1108/sajbs-03-2018-0031
Wang, H., Wu, J., Yang, Y., Li, R., & Liu, Y. (2019). Ownership concentration, identity and firm performance: Evidence from China’s listed firms. Emerging Markets Finance and Trade, 55(15), 3653-3666.
Wang,Y. H. (2022). Equity concentration and stock price crash risk in high-tech listed companies:An argument based on synergy of interests and trench defense effect.Technical Economic and Management Studies,11,101-106.
Wijethilake, C., & Ekanayake, A. (2020). CEO duality and firm performance: the moderating roles of CEO informal power and board involvements. Social Responsibility Journal. https://doi.org/10.1108/srj-12-2018-0321
Wu, T., Wen, M. Y., & He, L. L. (2021). The contagion effect and control mechanism of credit default risk in the corporate bond market. Journal of Financial Forum,26(09),26-35+69.http://doi.org/10.16529/j.cnki.11-4613/f.2021.09.004
Zhou, H., Zhou, C., Lin, W., & Li, G. (2017). Corporate governance and credit spreads on corporate bonds: an empirical study in the context of China. China Journal of Accounting Studies, 5(1), 50–72. https://doi.org/10.1080/21697213.2017.1292722
N/A
Copyright: © 2023 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode