Do social ties matter for corporate bond yield spreads? Evidence from China

摘要

Research Question/Issue This paper studies the effect of top management team (TMT) network centrality on corporate bond yield spreads. In additional analyses, we examine the hierarchical structures of TMT and study which parts contribute to the decrease in bond yield spreads. We also examine the mediating roles (including informed trading probability, media coverage, political ties, financial ties, and bond ratings) and the moderating roles (including marketization and analysts following) in the correlation between TMT network centrality and corporate bond yield spreads. Research Findings/Insights This paper finds that firms with high TMT network centrality are significantly negatively correlated with lower bond yield spreads. The findings are robust after controlling for a series of sensitivity checks and endogenous concerns. The results of the hierarchical structures show that the decrease of bond spreads is accounted for CFOs' networks and board members' networks, whereas the role of CEOs' networks is not apparent. More importantly, after controlling CEOs' networks, CFOs' networks, and board members' networks, the centrality of all TMT members' networks remains statistically significant, indicating that firms can benefit from the interlocking of all TMT members (not just the senior members). From the mediating effect results, we find that high TMT network centrality increases the value of a firm's probability of informed trading and its bond ratings while also increasing a firm's access to media coverage, political ties, and financial ties, which in turn can help lower bondholder' risk premiums. The moderating effect results show that the higher the marketization index and the more analysts following a firm, the higher the benefit of TMT network centrality to bond spreads. Theoretical/Academic Implications The results provide strong evidence that bondholders require lower bond yield spreads for firms with higher TMT network centrality, which suggests that TMT network centrality is critically essential for firms to obtain resources and to build a good corporate image and reputation; TMT network centrality can also lead to better information flow. Practitioner/Policy Implications This paper can inform various stakeholders about the impact of high TMT network centrality on bond yield spreads. It would be helpful to ensure the reasonable pricing of corporate bonds and to promote healthy and sound development of the bond market.