Research On The Impact Of Internal Control Level On The Credit Spreads Of Corporate Bonds

In recent years,China’s bond market which has experienced the expansion of corporate bonds,the improvement of transaction system and the development of various types of OTC market,has entered a period of rapid development,the number of issued bonds grows rapidly,types of debt continue to grow.However,the credit risk of China’s bond market began to expose gradually,and the bond default events occur frequently.The credit spreads is to compensate to investors with the reference to asset default risk,higher than the risk-free interest rate spreads,namely risk assets yields higher than the risk-free rate,is a kind of the risk of compensation for the risk of default.Therefore,the research on the bond credit spreads is the focus of the current research.Internal control is the internal mechanism of self-regulation and self-control in the production and management activities.The quality of the internal control determines the success or failure of the enterprise,which reflects the level of credit risk of the enterprise from a deep level.In theory,high quality internal control means that the enterprise operation is effective and it can prevent the risks effectively,so that enterprises are more likely to get a lower credit risk premium when issuing bonds.So in the rapid development of the bond market,whether the level of internal control can reflect the level of enterprise’s credit risk,is the main problem of this paper.First,this paper separately from the company’s internal control level information announcement and third-party assessment of the company’s internal control level points of view,discusses the intrinsic relationship between the level of internal control and the level of corporate bond credit spread.Then we analyze the influence of enterprise property rights,debt credit ratings and other factors on the relationship between the two variables.The study found: first,with the improvement of the level of enterprise’s internal control,the credit spread of corporate bonds was significantly reduced.the disclosure of high quality internal control of listed companies releases positive signals to investors that companies are facing low level of credit risk.It can guide investors to obtain a lower credit risk compensation in corporate bond issuance,the enterprise obtain a low credit spread;Second,in comparison with the state-owned enterprises,the level of internal control of the non-state-owned enterprises has a more significant impact on the bond credit spreads,to a certain extent,it can explain the main nature of state-owned enterprises can play the role of the implicit guarantee,the implicit guarantee may make investors ignore the need for attention to the level of internal control of listed companies.So that the level of internal control of state-owned enterprises can’t affect the corporate bond credit spreads significantly;Third,bond rating can affect the relations between the level of internal control and credit spread significantly,that is,a high level of bond credit rating also shows that the probability of bond default is lower,and the credit risk which investors face is less.Compared with the listed companies with high credit rating bonds,the internal control level of the listed companies offering low credit rating bonds has a more significant impact on the credit spread;Fourthly,there is a point in the internal control level of listed companies,which can divide the internal control level into two levels.The improvement of the internal control level in the two intervals can significantly reduce the credit risk premium of the listed companies’ bonds.China implements the system of internal control actively in recent years,and promotes enterprises to improve their ability to prevent risks.This study reveals that the implementation of the system has played a positive role in the bond market and the development of enterprises in our country.Internal control system is not only conducive to improving the level of internal control and risk management capabilities,but also to promote the healthy and stable development of the bond market in our country.