Research On The Effect And Mechanism Of Excess Goodwill On The Bond Credit Spread

Since the 18 th National Congress of the Communist Party of China,as an important channel for direct financing and policy transmission,the bond market has become increasingly important in promoting China’s economic transformation and development.Our Party and government also attach great importance to and continue to promote the improvement of the bond market system and mechanism.However,compared with developed countries,the maturity of China’s bond market still needs to be improved,and bond default events occur frequently,which seriously affects the healthy and orderly development of China’s financial market.As a result,the bond credit spread,as the market’s compensation for the issuer’s default risk,has attracted more and more attention from the academic community.At the same time,due to the active M&A and restructuring of listed companies in China in recent years,the A-share market has accumulated a huge amount of goodwill assets,making bond investors more and more concerned about and vigilant about the goodwill quality of target investment companies.Moderate and reasonable goodwill can create value for the company,while excess goodwill,as a product of irrational mergers and acquisitions,may increase the uncertainty risk faced by the company in the future and become a business burden.Therefore,based on the background of high bond default risk and high M&A premium in China’s capital market,it is of practical significance to explore what impact excess goodwill will have on corporate bond credit spread and how it will have.This paper determines the research theme by combing and summarizing the literature related to excess goodwill and bond credit spread,and puts forward research hypotheses based on three existing classical theories.Finally,empirical research is used to prove the hypothesis.Specifically,this paper uses the regression residuals of the goodwill expectation model to measure excess goodwill.The larger the index is,the more likely the company’s goodwill is to be overestimated.Taking the bond credit spread as the explained variable,this paper conducts regression analysis on the basis of adding relevant control variables such as corporate characteristics,bond characteristics,and macroeconomic characteristics,and constructs proxy variables such as business risk and information asymmetry to test the intermediary effect.In addition,it further explores whether the impact of excess goodwill on bond credit spread is significantly different among companies with different levels of financing constraints,internal control quality and information environment.It is found that with the increase of excess goodwill,the credit spread of corporate bonds expands,and the cost of bond financing rises.The mechanism test shows that the excess goodwill expands the bond credit spread mainly through the two specific paths of intensifying the business risk and increasing the degree of information asymmetry.On the one hand,the excess goodwill not only weakens the competitiveness of the company in the product market,but also makes it miss favorable investment opportunities due to the shortage of funds,ultimately damaging the business performance,increasing the uncertainty risk,leading to the expansion of the bond credit spread;On the other hand,the higher probability and scale of subsequent provision for impairment of excess goodwill provide space for the management to implement opportunistic behavior.They are likely to use goodwill for earnings management,hide or delay disclosure of some information,thus exacerbating the information risk faced by investors,leading to the expansion of bond credit spread.In addition,this paper also finds that the impact of excess goodwill on the credit spread of corporate bonds is more significant in the sample of companies facing greater financing constraints,lower quality of internal control and poor information environment.The research of this paper has certain theoretical and practical significance.At present,only a few scholars have deeply discussed the relationship between excess goodwill and corporate bank credit financing and commercial credit financing,but there is no literature to discuss whether it will have an impact on corporate bond financing.However,this paper confirms the negative role of excess goodwill on bond credit spread,which enriches the relevant literature on the economic consequences of excess goodwill and the influencing factors of bond credit spread.In addition,the research conclusions of this paper also provide a new perspective for government departments to strictly control the bond default risk,and also provide empirical support for regulators to formulate relevant policies to constrain the high premium acquisition behavior of listed companies and regulate the measurement management of goodwill assets.