An Empirical Examination Of Credit Enhancement Methods' Influence On China's Quasi-municipal Bond Credit Rating

As an important method for local government financing, quasi-municipal bond in China have been expanding by leaps and bounds, along with accumulated credit risk. More and more credit enhancement methods have been used to improve the credit rating and lower the financing cost. The study focuses on the effectiveness of different credit rating methods on quasi-municipal bond credit rating, and brings up some suggestions to improve the credit enhancement system.The empirical examination demonstrates that mortgage, pledge, guarantee and the combination of them are all effective in improving quasi-municipal bond credit rating. The study also shows that for third party guarantee, different types of business have different influence on the bond credit rating. Bank guarantee and state-owned enterprise guarantee are the two most effective ways, while local government financing platform guarantee is less effective. Moreover, other factors also have significant effects on quasi-municipal bond credit rating. These factors include bond maturity, bond size, bond spread, underwriter, and credit rating agency. Bond issuers' total assets and turnover of total assets also influence bond credit rating significantly. GDP per capita, finance income and population growth rate of the area where bond issuers located are all influential factors. As for improving the bond credit enhancement system, the study suggests to reinforce the innovation of credit enhancement methods, to foster more specialized guarantee business, and to enrich and improve the laws and regulations for credit enhancement system.