| Since the restoration of China Treasury bonds in 1981,China bond market has developed for more than thirty years,and the market size has become the third in the world at present.However,compared with China stock market,it is rather lagged for system facilities and function exertion and operational quality of China bond market.As an important branch,the corporate bond market is slow to develop because it is confined the development dilemma of the entire bond market.Until August 14th,2007,the corporate bond was started to officially allow to issue in China bond market.Although the establishment of the corporate bond market broke the development bottleneck of China bond market in a longtime,its allocation of funds isn't still fully played.As of June 30th,2015,the scale of China corporate bond balance is nearly 800 billion,which accounted for only 2%of the entire bonds market size.While in developed countries such as Europe and US bond markets,the market share of corporate bonds usually above 20%.Why the development of the China bond market,especially the corporate bond market is relatively late and slow,one of the main reasons is that the pricing system for corporate bond has not yet been formed,and the irrational pricing system much easier lead to the emergence of corporate bond price errors which can not even be eliminated by arbitrage trading in a corporate bond market that is serious asymmetry of information,which could seriously affect operational quality and heathy development of bond market.Domestic corporate bond pricing basically followed the corporate bond pricing framework of the bond markets in American and European countries.The determined cash flows are discounted to the present time by term interest rate structure that was stripped out beforehand,and the final value is the current market price of corporate bond.Unlike the China bond market,the corporate bond in the developed countries market not only reflects the changes of macroeconomic state,but also the operation condition and performance of listed company can be reflected into bond price by bond rating owing to an excellent credit rating system.But whether at home and abroad,only the exogenous interest rate is regarded as the most important conditions for corporate bond pricing,and hardly pay attention to the impacts of other factors on the pricing of corporate bonds.In particular,it is ignored for deeply mining the relationships between the bond covenants that embedded in corporate bonds for the purpose of protecting investors and the corporate bond pricing.The covenant,which is shown in text form,constrains rights and obligations of both the issuer and the creditors,and are a serious of provisions that restricting the issuer's behaviors to grasp and tunneling the interests of creditors.The main role of contract terms is to alleviate information asymmetry between bond issuers namely shareholders and creditors,and solve the agency conflict between shareholders and creditors,thereby protecting the interests of creditors whose information disadvantage.Since the bond covenants can reasonably arrange and deal with a variety of potential risk factors in advance,the covenants would alter the bond risk level to affect the safety and quality of corporate bond under the other conditions unchanged.Even though the bond covenant has been formulated before issued in the market,the bond covenant would survive to maturity,except in cases of technical default for the bond,which causes the bond risk differences in cross-section that resulted from the covenants.It would continue to the secondary market of bond,and has the impacts on market price of corporate bond.Simultaneously,the bond covenants would change the investors' expectations and preference through alleviating the information asymmetry of the secondary market,and affect the demand of corporate bonds,which finally results in vary of the bond price.In brief,there is a correlation between the bond covenants and the bond pricing.The bond covenants have a certain degree of effects on bond pricing because the covenants can affect bond risks.Based on the relevance between the bond covenants and the bond pricing,this dissertation deeply studied the effects of the bond covenants on the bond pricing from the prospective of bond covenant.Given the decision process and important features of bond pricing,this article divided the bond pricing into four dimensions:the bond yield to maturity,the bond coupon rate,the bond liquidity and the bond price volatility.Firstly,the mechanisms and channels of bond covenants affecting the four dimensions of bond pricing were explored respectively by theoretical deduction.And secondly,with utilizing the bond covenants information that selected by hand,as well as combined with Chinese corporate bond data,the correlation between bond covenants and bond yield to maturity,bond coupon rate,bond liquidity and bond volatility were researched respectively by empirical analysis,and the impacts of the bond covenants on the bond pricing were summed up.Finally,the empirical conclusions show:First,because the bond covenants can avoid the future uncertainty faced by bond,and reducing the credit risk and the other non-credit risk of bond,which can effectively lower credit spread,non-credit spreads and total spread ofbond yield to maturity.Second,belonging to the bond basic content for the covenants indentures and bond coupon rate,both complement each other,and influence each other.Moreover,there is a strong substitute effects between bond covenants and bond coupon rate,which means that the bond covenants is significantly inverse correlated with the bond coupon rate,and the shift between the covenants and coupon rate would appear in a same corporate bond.Third,the bond covenants can improve the credit quality of the bondby protecting the interests of investors in the future,therefore,the introduction of covenant indentures could significantly improve the level of liquidity in the secondary market.Fourth,the bond covenants could protect the interests of investors,and alter the bond risk,especially bond idiosyncratic risk,thus the bond covenants can significantly reduce the overall volatility and idiosyncratic volatilityof bondprices.All in all,the bond covenants can significantly affect the yield to maturity,the coupon rate,the liquidity and the volatility of corporate bond,namely there is a significant association between the bond covenants and the bond pricing.Combined with the development situation of China corporate bond market,this dissertation provided a lot of policy recommendations for construction of facilities and theimprovement ofmarket institution in the basis of empirical conclusions,in order to promote China bond market,especially corporate bond market to develop sustainably and stably.The specific structure of the dissertation is arranged as followed:Chapter 1 is the introduction.From the actual situation of China bond market,the background and the significance of this study were clarified.On the basis of straightening out the references about the bond covenants and bond pricing,it leads to the basic ideas and contributions of this article,and overviews its research framework.Chapter 2 is the theoretical analysis of the bond covenants and the bond pricing.Based on the financial theories and economic intuition,and combined with the underlying attributes and properties of the covenants,it did theoretical deductions for the relationship between the bond covenants and the four dimensions of the bond pricing,respectively,and analyze the impact mechanisms or pathway of the bond covenants on yield to maturity,coupon rate,liquidity and volatility,as well as given the theoretical expectations.Chapter 2 is the description in detail for the sample and data of the corporate bonds and the bond covenants that involved in this study.By screening the corporate bonds among the all corporate bonds in China bond market from September 1st,2007 to June 30th,2015,finally it obtained 547 corporate bonds that were issued by 401 liseted corportions from 568 corporate bonds.For the sample,firstly,the statistics and description of the corporate bonds were done from multiple angles such as issued year,bond rating,company property of issuers,issuers' industry and so on,for the purpose of clearing the distribution of the corporate bonds.Secondly,all the corporate bonds were classified according to the specific functions of the covenants indentures,and it did descriptive statistics for the bond covenants in the light of the number of covenant in a corporate bond.On this foundation,the bond covenant index was constructed in accordance with Billett,et al.(2007)method that quantifies the covenant indentures of corporate bonds.Chapter 4 is an empirical analysis of the impactsof the bond covenants on the bond yield to maturity.Stripping out credit spreads and non-credit spreads from the yield to maturity of the corporate bonds,and combined with the total spread,the regression models of the three spreads on the bond covenants were constructed,respectively,and Fama-Macbeth method was applied to estimate parameters of three models.Based on the conclusions those were consistent with the theoritical expectations,the number of the covenant indentures was substituted for the covenant index for the same bond,and robustness analysis was performed by replacing a proxy variable for the empirical results.Chapter 5 is a research of the relationship between the bond covenants and the coupon rate.Focusing on the basic characteristics which referred to that the bond covenant indentures and coupon rate are both belonged to the basic content of the bond covenant,and taking into account both of them having mutual interaction and alternative relationships,the simultaneous equations model of two equations was devoloped,and parameters of model was estimated by the GMM method,which could avoid the endogenous problem resulted from simultaneity and reverse causality.To ensure robust results,the portfolio-sorting method was also used to check the relationship between the bond covenants and the bond coupon rate.Chapter 6 conducts an empirical research for the relationship of the covenant indentures and the bond liquidity.Closely combined with issuance characteristics and trading features for Chinese corporate bonds,the fact that the sample selection bias may exist between the covenant indentures and the bond liquidity was identified.Thereby,the Heckman two stage processes were applied to estimate model parameters,as well as the application of propensity score matching model(PSM)was further employed to do the robustness checking for the relationship between the covenant indentures and bond liquidity.Chapter 7 is the empirical analysis of the bond covenants affecting the bond price volatility.The idiosyncratic volatility of corporate bond was stripped out by utilizing bond pricing model.And coupled with the overall volatility of corporate bond,the linear models for the overall volatility and the idiosyncratic volatility on the covenant indentures were established,respectively.The model parameters estimation exploited Fama-Macbeth method,and further,the OLS estimation for the pool data was used to robustness check for the empirical results.Chapter 8 is the conclusion and policy Suggestions of this study.It reviewed and summarized the empirical results,and acquired the relationship between the bond covenants and the bond pricing.And combined with the development characteristics for China bond markets,especially the corporate bond market,it provided the targeted policy recommendations from the definite aspects including bond covenants design,system construction and bond market pricing,which ensure to promote the reform and development of China bond market,and improve the efficiency of China bond market serving the entity economic. |
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