Research On The Impact Of Government Implicit Guarantee On Credit Spread Of Urban Investment Bonds

On December 30,2022,Zunyi Road and Bridge Construction disclosed the announcement on promoting bank loan restructuring.As the largest urban investment platform in Zunyi City,the loan restructuring of Zunyi Road and Bridge Construction is regarded as the first case of substantial default of the urban investment platform.In the nearly 30 years of development,Chinese urban investment bonds,as an important local financing method,have made great contributions to local infrastructure construction and urbanization development.However,the rapid growth of urban investment bonds has increased local government debt and systemic risk rapidly.In order to resolve the problem of local government debt,the central government has issued a series of regulatory policies since 2014.In the past research on urban investment bonds,scholars mainly focused on the impact of government implicit guarantee on the pricing of urban investment bonds,including the connotation of government implicit guarantee,the direction and extent of the impact of implicit guarantee on the pricing of urban investment bonds,and the relevant mechanism.Based on the practical background and theoretical research,this paper uses the dataset of 2704 urban investment bonds,which are issued from 2015 to 2022 and have been in existence,to investigate the impact of government implicit guarantee on credit spread of urban investment bonds;Then this paper analyzes this conduction mechanism by using mediation effect model;In addition,through the analysis of heterogeneity,this paper discusses the difference of reduction effect of implicit government guarantee on credit spread of urban investment bonds at different administrative levels,different guarantee forms and different policy time points.Through the empirical research results,the following conclusions can be drawn:First,implicit government guarantee has a significantly negative impact on credit spread of urban investment bonds.Compared with urban investment bonds in western provinces,implicit government guarantee has a stronger impact on credit spread of urban investment bonds in eastern and central provinces.The impact of implicit government guarantee on the bond interest rate depends on economic development of issuer’s location.Second,implicit government guarantees can affect credit spread of urban investment bonds by affecting the debt rating.The higher the level of implicit government guarantee,the higher the debt rating given by rating agencies,and credit spread of urban investment bonds will also be reduced.Thirdly,the influence of government implicit guarantee on credit spread is heterogeneous for different administrative levels and different forms of guarantee.The lower the administrative level of urban investment platform,the greater the reduction effect of implicit government guarantee on credit spread;The existence of third-party guarantee will significantly reduce the effect of government implicit guarantee on credit spread.Fourth,the Opinions on Further Deepening the Reform of the Budget Management System,issued by the central government in April 2021,has not significantly changed the impact level of implicit guarantee on credit spread of urban investment bonds,which shows that it is difficult to break investors’ belief in urban investment bonds.The significance of this paper is providing empirical evidence for the expected estimation of implicit government guarantee behind urban investment bonds,and using credit rating as an intermediary variable to discuss the transmission mechanism of the effect of implicit government guarantee on the credit spread.In addition,the empirical results of heterogeneity research in this paper help to understand the mechanism of implicit government guarantee more deeply.Finally,the paper tests the effectiveness of the latest policy,and also enriches the research on verifying efficiency of relevant policies in weakening the investors’ belief in urban investment bonds.