Examining the cost of debt and bond spreads: public vs. private firms in China

This study examines the cost of debt issued by private firms relative to that issued by public firms in China. This study argues that private firms have more direct access to management and increased involvement by minority shareholders manifest in the relative benefits of reduced information asymmetry, more efficient financing and investing decisions, and enhanced monitoring, and thus ultimately a lower cost. Using a unique dataset of 6.942 bond issuances spanning the period 2010 – 2017, this study confirms a cost benefit to private firm issuers of public debt relative to public firm issuers. The results of a series of additional tests (propensity score matching, entropy balancing, and alternative measures) provide further support for the primary conclusions.