The Impact Of Economy Policy Uncertainty On Credit Spreads Of Corporate Bonds

The credit spread represents the external financing level of the issuer,which implies the credit status of the company and also reflects the financing ability of the company in the bond market.The credit spread of bonds and its influencing factors are the focus of academic circles in recent years.At present,there is little literature about the impact of economic policy uncertainty on corporate bond credit spreads.Since 2018,the Chinese economy has been greatly affected by changes of the internal and external environment.During this period,China’s central bank implemented a stable and loose monetary policy.From the perspective of policy effects,the liquidity among banks was sufficient,and the problem about lack of currency was alleviated.However,the transmission channel from loose currency to loose credit is blocked,which can also be reflected on the credit spread of bonds.The credit status of enterprises,especially the credit status of SMEs,has not been fundamentally improved.Since the global financial crisis in 2008,many scholars have gradually realized that economic policy uncertainty has become an important factor hindering economic recovery,and a profound impact on corporate behavior and economic output.In addition to the company’s own operating conditions,economic policy uncertainty may also become an important factor hindering companies to narrow credit spreads and reduce credit risk.Therefore,it is of great academic and practical significance to study the impact of economic policy uncertainty on the credit spread of corporate bonds.This paper studies the influence of economic policy uncertainty on the credit spread of corporate bonds and its channels of action.Firstly,based on the existing theories and research,we put forward corresponding hypotheses.Then,based on the regression analysis method of credit spreads,we use the VAR model to empirically test the impact of economy policy uncertainty on credit spreads from the macro level;then using panel data,at the micro level,we examines the mediating effect of business benefits and investor sentiment,and regulation effect of information asymmetry of economy policy uncertainty affecting corporate credit spreads.Main conclusions are as follows:(1)The increase in economy policy uncertainty will increase the level of credit spreads on corporate bonds.Because state-owned enterprises often have a monopoly position and are supported by the government’s finance,their operating efficiency is low but the risk of default is lower,which the impact of economy policy uncertainty on credit spreads of state-owned enterprise bonds is less sensitive compared with that of private enterprises.(2)The company’s operating efficiency played a mediating role in the process of economy policy uncertainty affecting credit spreads.Economy policy uncertainty tends to weaken the operating efficiency of enterprises and lead to increase volatility in profitability,which will increase the risk of default of enterprises and thus increase the level of credit spreads of enterprises.(3)Investor sentiment played a mediating role in the process of economy policy uncertainty affecting credit spreads.The increase in economy policy uncertainty will affect investors’ expectations for the future,reduce investor sentiment,and reduce investors’ risk appetite and risk-taking ability,thereby reducing the preference for corporate bonds and lowering the price of bonds.Finally,it increased the credit spread of corporate bonds.(4)The level of information asymmetry can effectively adjust the impact of economy policy uncertainty on corporate credit spreads.The level of information asymmetry among investors and the level of information asymmetry between companies and investors tends to magnify the impact of economic policy uncertainty on corporate credit spreads.According to the above empirical research conclusions,the government should maintain the long-term consistency of policy operation when formulating economic policies,and avoid the arbitrary adjustment of policies to give the market a full expectation and adjustment time,so that the market can give a more reasonable estimate on corporate bond prices and stabilize the company’s external financing costs and financing capabilities;at the same time,the government should increase support for private enterprises,improve the business environment of private enterprises,and creat an institutional environment for equal competition between state-owned enterprises and private enterprises.During the economic recession,the government should provide a better and more relaxed business environment for enterprises,carry out institutional reforms of tax reduction and decentralization;The government can better stabilize investor sentiment by establishing hedging mechanisms and sentiment detection indicator and reduce the impact of sentiment volatility on credit spreads;the government should establish a more complete information disclosure system to improve the efficiency of information transmission and reduce information asymmetry.And finally to alleviate the negative impact of economic policy uncertainty on credit spreads.