Abstract:
Against the backdrop of building a unified national market, clarifying whether the impact of local state-owned enterprise (SOE) bond defaults on credit rating quality exhibits cross-regional characteristics holds significant theoretical and practical importance. Using a sample of local SOE bonds, this paper examines the impact of local SOE bond defaults on credit rating quality at three levels—provincial, regional, and national—and finds that local SOE bond defaults only improve the rating quality of local SOE bonds within the defaulting province, exerting no comparable effect at the regional or national level. The reason lies in the fact that local SOE bond defaults primarily operate by weakening market participants' expectations of the implicit guarantee provided by the local government of the defaulting province; however, local governments differ in their capacity and willingness to provide implicit guarantees, which limits the extent to which this effect is transmitted to other provinces. Heterogeneity analysis indicates that the effect of local SOE bond defaults on improving intra-provincial bond rating quality is more pronounced when the rating agency has a lower reputation, when the audit is conducted by a non-"Big Four" accounting firm, when the degree of government-enterprise affiliation is higher, and when the issuer is a non-listed firm. This paper helps deepen the understanding of the relationship between local implicit guarantees and credit rating quality, and provides a reference for the sound development of the credit rating market against the backdrop of building a unified national market.
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