The Effect Of Industry Risk On The Corporate Debt Financing Cost

Since August 14,2007,Chinese bond market has boomed,which satisfies the diversified financing needs of enterprises but adds credit risk rapidly at the same time.In 2016,a total of 10 issuers appeared credit risk incidents,16 bonds involved.In the first half of 2017,the credit risk incident in the Chinese bond market involved 32 bonds,amounting to 19.46 billion yuan.19 bonds suffered from substantial default,and the default amounting to $15.83 billion.Among these credit risk events of the bond,there seemed to be a certain industry distribution characteristic.The occurrence of credit risk events of the issuing enterprises mainly concentrated in coal,electricity,mining,mineral smelting and construction industries and its upstream and downstream industries.Based on public data in recent years,this paper studies the relationship between industry risk and the cost of corporate debt financing,and finds that industry risk is one of the factors that affect the cost of corporate debt financing.This paper is divided into five parts.the first part of the study,this paper review the debt financing cost and risk of industry and finds that there is not many researches about the effect of the industry risk factors on the debt financing cost,and the existing research methods to measure the risk of the industry mainly regards industry risk as the whole or overall risk of the whole industry,which means every company in the industry suffers the same industry risk and research mainly focus on the the risk differences between different industries.This paper adopts a new perspective from the industry,the tail risk perspective,which emphasizes the correlations between the company and the industry under the condition of the industry crisis.Industry tail risk emphasizes the impact of the industry crisis on the company in the industry,and different companies’ industry tail risk exposure is different.The second part introduces the risk measurement method used in this paper.This paper uses two factor model in calculating the coefficient to measure industry risk,and according to research of the marginal expected shortfall model(Acharya,2010),this paper uses marginal expected loss(MES)to measure the tail risk of the enterprises.Compared with the traditional industry risk measurement method,the MES method can better capture the impact of industry risk events during the crisis,and can more truly reflect the risk exposure of companies under the industry downlink conditions.In the third chapter,according to data from the current Chinese bond market,this paper analyzes bond issuance and yield in different years and different sectors,finding that in recent years the size of corporate bond issuance increased significantly,and the largest in industrial sector.The yield in different credit levels,different period of maturity of the bonds has fluctuated in five years without obvious increase or decline.In the fourth chapter I did the empirical analysis.This paper uses credit spreads to measure the debt financing cost of enterprises,as explained variables,using MES to estimate industry tail risk,beta to estimate total industry risk,as explanatory variables.Using publicly available quarter data from 2011 to 2015 year in Shanghai stock exchange and Shenzhen stock exchange,this paper does unbalanced panel data regression of 20 times.Because the industry tail risk can affect the firm credit risk during the asset specificity.This paper divides data into high asset specificity firms and low asset specificity firms and does regression separately.Finally,based on the WIND industry classification standard,this paper chooses seven sectors of the industries except financial sector and public service sector,and does the quarterly data from 2011 to 2015 panel data regression,respectively.This paper find that in different industries,the effect of MES and beta on credit spreads is different.According to the above research,this paper gets the conclusion below:firstly,this paper finds that in the control of the enterprise characteristic variables,bond characteristic variables,both the beta coefficient and MES coefficient as the explained variable has a positive relationship between the credit spreads.;secondly,for enterprise with higher asset specificity,the impact of industry tail risk on the cost of debt financing is more obvious;thirdly,in the material industry and energy industry,the relationship between credit spreads and the explaining variables shows a good positive correlation,but there is no significant statistical result in other industries,which means for the industry in crisis the impact of industry tail risk on the cost of debt financing is more obvious,and MES measure does better than betaThere are two main points of innovation in this paper.First,this paper uses MES to measure the effect of tail risk industry and analyzes the effect of industry tail risk on the cost of debt financing;secondly,this paper studies the relationship between the industry risk,the cost of debt financing and asset specificity,and finds that for high asset specificity the impact of the industry tail risk of debt financing costs is stronger.There are some shortcomings in this paper.On the one hand,the use of industry classification is relatively general.On the other hand,using data until 2015,this paper has less timeliness.