Study On Credit Risk Of China Urban Construction Investment Bond

Tax system reform, accelerating urbanization and macroeconomic development have led to ever-increasing demands from local government on capital for municipal construction. Urban Construction Investment Bond supported by local governments as a new way for local fiscal financing channel has been becoming extremely popular in recent years with its lower risk ratio and relatively higher yield. However, as time goes by, the Bond gradually exposed the credit risk and aroused doubt and attention in market. The paper theoretically analyzes the fundamental cause of its credit risk, thus poor quality of information disclosure of urban development companies. After proving that high quality of information disclosure is necessary for a healthy market condition with information theory, the paper takes the point of practice and gives an empirical study on the exact steps about how the information disclosure report corrupt, which would certainly make the market unstable in the long run. Based on the analyses above, the paper tries to conclude with some proposals on how to prevent credit risk in the perspective of the insurer, thus the urban development company. The major contents are as follows:The paper starts a concrete analysis of the sources of credit risk in China urban construction bond market in a context of reality, pointing out that financial problems of local government and governance structure as well as operational management failure are often firmly connected with future credit risk. Therefore, the paper develop the analyses in respective two ways, local government and urban development company, after which it further locks on the core source of credit risk is originated from information disclosure of urban development company.Principal-agent theory, asymmetric information theory and information signaling theory are used to prove the necessity of information disclosure from urban development companies. The essence of information disclosure is the unavoidable existence of asymmetric information problem and the specific aspects are discussed. It ends with exposing significance of information disclosure for all parties in China urban construction bond market.From the perspective of urban development company, the paper gives an empirical study on the exact steps about how the information disclosure report corrupt, further concluding that substantial reorganization of corporate finance which leads to unreal profitability is the major source of credit risk.Empirical study has to some extent proved that poor quality of information disclosure report would certainly make the market unstable in the long term. Theoretical analyses are coming to propose several precaution measures. In the paper, the literature study, institutional research, comparative analysis, empirical analysis and other methods of economic studying have been applied.What mentioned above has practical significance for stabling bond market in the context that no previous research has been done for urban construction bond credit risk in perspective of information disclosure of urban development companies.