Intra-industry spill-over effect of default: Evidence from the Chinese bond market

摘要

We investigate the intra-industry spill-over effect of defaults in the Chinese bond market by using a sample of public corporate debt securities for the period 2014-2018. We find that both industry portfolios and individual firms witness a strong contagion effect, which further spreads to the primary bond market, triggering a surge in the debt financing cost for default industries. Moreover, this contagion effect is stronger for low-competition industries and regulated industries, as well as when a default happens to state-owned enterprises. Better information access and higher bond liquidity alleviate the contagion effect, lending support to the information updates and liquidity dry-up hypotheses.