Implicit Guarantee And Credit Spread Of City Investment Bonds: The Impact Of COVID-19

Local governments will implicitly guarantee the borrowing behavior of urban investment.Investors have expectations for the implicit guarantee of local governments,and make investment decisions accordingly.Therefore,the implicit guarantee is reflected in the credit spread of urban investment bonds.Under the implicit guarantee,the disorderly expansion of urban investment debt has triggered the risk of local government debt.The introduction of regulatory documents such as the opinions of the State Council on strengthening the management of local government debt and the budget law of the people’s Republic of China(revised in 2014)effectively limited the expansion of urban investment debt,promoted the transformation of urban investment,and reduced investors’ expectations for the implicit guarantee of local government.The COVID-19 has formed a comprehensive exogenous impact on China’s economy and society.After the COVID-19,the debt of urban investment expanded rapidly.Under the new situation,it is of both theoretical and practical significance to study how the impact of the COVID-19 affects the relationship between implicit guarantee and credit spread of urban investment bonds.This paper selects the urban investment bonds issued from 2016 to 2021 as the research object,combined with the local economic level and local government debt level,explores the impact of local government implicit guarantee on the credit spread of urban investment bonds,and makes a heterogeneity analysis according to the regional financial level and debt level.In this paper,the generalized double difference model is introduced to construct the epidemic impact degree variable to explore the impact of the severity of the COVID-19 on the relationship between the implicit guarantee of local governments and the credit spread of urban investment bonds.Finally,according to the degree of local marketization and the degree of government probity,this paper analyzes the heterogeneity of COVID-19 effect.The results show that both local government debt level and local economic level can have a significant impact on the credit spread of urban investment bonds,and local government implicit guarantee can significantly affect the credit spread of urban investment bonds.After the COVID-19,the credit spread of urban investment bonds reflects more implicit guarantee information of local governments.In areas more severely affected by the epidemic,the implicit guarantee of local governments has a greater impact on the credit spread of urban investment bonds.This shows that the impact of the COVID-19 has led to the enhancement of the implicit guarantee of local governments for urban investment bonds and the aggravation of investors’ expectation of "just exchange".