State Ownership and the Term Structure of Yield Spreads : Evidence from China

We investigate how state ownership affects a firm's term structure of yield spreads by examining SOEs in the Chinese bond market. Both Regular-SOEs and Policy-SOEs have substantially lower spreads than non-SOEs, and Policy-SOEs have even lower spreads than Regular-SOEs at shorter maturities, but their advantage disappears at longer maturities. The shrinking borrowing advantage cannot be explained by firm credit profiles, market liquidity, or decreasing government support due to local politician turnovers, while political uncertainty remains a possibility. Moreover, there is strong cross-sectional and causal evidence for a "window dressing" channel, where the government support for Policy-SOEs declines following bond issuance