Sovereign bond market reactions to no-bailout clauses and fiscal rules – The Swiss experience

We analyse the effects of a credible no-bailout policy and stringent sub-national fiscal rules on the risk premia of Swiss sub-national government bonds in the period from 1981 to 2007. In July 2003, the Swiss Supreme Court decided that the canton of Valais is not liable for municipal debt. This landmark decision reduced cantonal risk premia by about 26 basis points and cut the link between cantonal risk premia and the financial situation of the municipalities that existed before. The result demonstrates that a not fully credible no-bailout commitment can entail high costs for the potential guarantor. Additionally, strong and credible balanced budget rules reduce risk premia.     

地方政府财政压力与银行信贷资源配置效率——基于我国城市商业银行的研究证据

基于2005—2015年我国城市商业银行的样本,本文研究省级地方政府财政压力是否对商业银行信贷资金投向和信贷资源配置效率产生影响。研究发现,地方政府财政压力是影响城市商业银行信贷资源配置的重要因素。具体而言,省级地方政府的财政压力越大,省内城市商业银行投向地方国有经济部门的贷款比率越高。然而,信贷资源更多投向地方国有经济部门的银行有更高的不良贷款率和更差的会计业绩。进一步研究发现,在财政压力大的省份,城市商业银行投向地方国有经济部门的贷款比率越高,则贷款拨备率越低,这表明城市商业银行会通过盈余管理行为来应对监管压力。本文研究结论对商业银行监管以及防范化解金融风险有重要启示。     

地方政府债券的经济影响分析

地方政府债券的发行对经济的影响涉及宏观、微观、金融、财政、区域发展等多个层面.其在缓解地方财政困难的同时也可能助长地方政府负债冲动,对中央财政的影响则取决于地方政府自身的偿付能力及发债规模的控制.在微观层面.地方政府债券的发行会促进地方性公共品的供给,同时也有利于实现公共品受益的代际公平;在宏观层面,有助于克服利用外资的本币化倾向,规避汇率风险问题.此外,地方政府债券的推出也有助于完善金融市场和金融体系,其对区域经济发展的影响取决于发债地区的选择标准.在推出地方债券的同时,必须通过审慎的管理来防范其风险.     

Determinants of municipal loan spreads: empirical evidence from Switzerland

This is the first study to investigate the determinants of risk premia paid by Swiss municipalities in the German-speaking part of Switzerland. This paper draws on a unique data set for Swiss municipalities collected during four surveys. Our results show that fiscal soundness has almost no impact on risk premia and that the introduction of a no-bailout policy did not result in higher spreads. On the other hand, investors’ general risk aversion, as well as interest rate levels, are strongly related to spread levels.     

地方政府隐性债务与城投债定价

由于1994年《预算法》限制了中国地方政府凭借自身信用发行政府债券的能力,地方政府通过设立融资平台的方式发行了大量城投债券。虽然城投债被普遍认为是含有政府隐性担保的,但隐性担保主体认定尚未有共识。本文通过加总地方政府下属融资平台有息债务总额的方法,构建地方政府隐性债务负担率指标,并通过分析地方政府隐性债务负担率对城投债一二级市场信用利差的影响,进一步探索市场对城投债隐性担保责任主体的认定。研究发现,政府隐性债务负担率高的地方城投债信用利差偏高,并且这种影响随政策以及宏观形势而变化。自滇公路违约函事件后,投资者在城投债定价中开始普遍关注地方政府隐性债务负担率的信息;而在43号文明确了地方政府债务置换措施后,省级政府的隐性债务负担率开始成为城投债定价的重要影响因素。这说明投资者认可的地方隐性担保的责任主体是随时间变动的。     

Cyclicality of SME lending and government involvement in banks

Recent regulatory efforts aim at lowering the cyclicality of bank lending because of its potentially detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending of local banks with versus without a public mandate, controlling for location, size, loan maturity, capitalization, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a sustainable provision of financial services to local customers and a deviation from strict profit maximization. We find that banks with a public mandate are 25% less cyclical than other local banks. The result is credit supply-side driven and especially strong for public mandate banks with high liquidity and stable deposit funding. Our findings have implications for the bank structure, financial stability and the finance-growth nexus in a local context.     

The Political Economy of Fiscal Supervision and Budget Deficits: Evidence from Germany

In many federal countries, local governments run large deficits, even when fiscal supervision by state authorities is tight. I investigate the extent to which party alignment of governments and fiscal supervisors influences budget deficits. The data set includes 427 German local governments for the period 2000–2004. I exploit a period after a far‐reaching institutional reform that entirely re‐distributed political powers on both the government level and the fiscal supervisor level. The results do not show that party alignments of governments and supervisors (co‐partisanship) drive short‐term deficits. Instead, I find that the ideology of partisan governments and supervisors matters: left‐wing local governments run higher deficits than their right‐wing counterparts; left‐wing supervisors tolerate higher deficits than right‐wing supervisors. These findings imply that political independence for fiscal supervisors is recommended.     

Sub-nationals' risk premia in fiscal federations: Fiscal performance and institutional design

The recent debt crisis in Europe highlighted the importance of institutional design and, in particular, bail-out clauses in determining States' risk premia in fiscal or quasi-fiscal federations. This paper examines the determinants of sub-national governments' risk premia in fiscal federations using secondary market data for the USA, Canada, Australia and Germany. It finds that, as for central governments, fiscal fundamentals matter in the pricing of risk, and sub-national governments with higher public debt and larger deficits pay higher premia. However, this relationship is not uniform across federations and it differs with institutional arrangements. In particular, market pricing mechanisms are less effective in presence of explicit or implicit guarantees from the central government. We show that when sub-national governments depend on high transfers from the central government (i.e., when there is some form of implicit guarantee from the center), markets are less responsive to sub-national governments' fiscal fundamentals. Using primary market data, the paper also shows that high transfer dependency lowers the probability of sub-national governments to borrow on capital markets.     

The role of ESG scoring and greenwashing risk in explaining the yields of green bonds: A conceptual framework and an econometric analysis

This article aims to investigate the factors that most influence the yields of public sector and corporate green bonds besides those conveyed by the conventional finance theory (e.g., rating, volatility, maturity). To accomplish that, we first develop a theoretical framework that postulates the negative relationship between the size of the underlying project financed by a green bond issuance, the use of the ESG metrics to quantify such impact, as well as the positive relationship between the risk of greenwashing practices by the issuer, and the yield to maturity of the green bond. We then provide an empirical validation of our conceptual framework by estimating multiple regression models applied to two distinct samples of public and corporate green bonds issued globally in the 2012–2020 period. The reliability of our results is confirmed by further exploring the effects of some key determinants on the yield spread of green versus comparable ordinary bonds of corporate issuers. Our findings corroborate our theoretical predictions showing that investors are inclined to accept lower returns in exchange for contributing to the funding of infrastructure projects with greater impact on the sustainability of target communities or territories and require higher premia as a form of compensation when being exposed to higher risk of greenwashing by issuers. At corporate level, greenwashing risk is higher among manufacturing (rather than services) firms but more pronounced in the financial sector. At public level, greenwashing strategies may be more easily pursued by multinational or sovereign issuers rather than local governments as the former's greater distance from communities enables them to elude investors' controls. Important recommendations are drawn for investors, rating agencies, and policymakers.     

Determinants of sub-sovereign bond yield spreads – The role of fiscal fundamentals and federal bailout expectations

This paper investigates how bailout expectations affect the extent to which yield spreads for bonds issued by sub-sovereign entities within fiscal federations price in fundamentals related to default risk. The question is analysed both across and within federations using a novel dataset for sub-sovereign governments that includes Australian states, Canadian provinces, Swiss cantons, German Länder, US states, Spanish communities, and Indian states. The paper finds that sub-sovereign debt and deficit levels relative to GDP are important drivers of sub-sovereign spreads. However, the weight assigned by financial markets to fundamentals when pricing sub-sovereign bonds is reduced when the institutional set-up of the federation allows for bailouts. Moreover, within federations, the market’s expectation of a federal bailout and the capacity of the federal government to provide support to the weaker members of the federation similarly affect the extent to which fundamental factors are priced into spreads. The paper shows that the positive link between debt and risk premia tends to break down when sub-sovereign government debt rises above certain thresholds. This could reflect the market’s expectation of a federal bailout as fundamentals deteriorate. Additionally, larger sub-sovereign entities tend to pay higher premia as fundamentals worsen which could be linked to the limited capacity of the federal government to provide support as the size of the expected bailout increases. A pattern of rising risk premia as fundamentals worsen is also found for sub-sovereign entities when the central government faces borrowing constraints.     

Effects of securitization and covered bonds on bank stability

This paper empirically investigates the relationship of securitization and covered bonds with bank stability and highlights that this relationship varies with the level of a bank's involvement in a specific instrument. The study uses the data from 46 securitizing and covered bond issuing listed banks in Europe for 2000–2014. The initial results show that some banks have been heavily involved in securitization activity, while covered bond issuance does not go beyond a certain limit. The results obtained using a quadratic model and a generalized additive model show a U-shaped relationship between securitization and systemic risk of banks. However, some interesting results are obtained for covered bonds. Initial results do not show a significant impact of covered bonds on systemic risk, but further analysis shows the presence of a size effect. The systemic risk of smaller banks increases after the issuance of covered bonds, while larger banks remain unaffected. The study does not support imposing uniform limits on covered bond issuance; rather such limits should be linked to the bank size. However, some regulatory framework is needed to limit banks’ involvement in securitization.     

财政压力与地方政府融资平台的兴起

本文利用2004-2006年取消农业税的自然实验,使用1994—2009年的县级面板数据首次从实证上检验了财政压力导致地方政府融资平台成立这一假说。利用双重差分模型研究发现,取消农业税改革导致的财政冲击越大,县级地方政府在改革后设立融资平台的概率越高。这一发现在不同模型设定下保持稳健,并通过了基于改革前样本和利用其他税种收入变动构造的安慰剂检验。我们还排除了上述发现由扩权强县和财政省直管县等其他财政制度改革驱动的可能性。进一步的分析表明,面临更激烈的区域间竞争、初始财政禀赋较低的县更倾向于设立融资平台。本文丰富了关于财政压力对中国地方政府行为影响的研究,有助于更好地理解中国财政体制与金融制度之间复杂的关联性。     

The Fiscal Decentralisation and Economic Growth Nexus Revisited

This paper addresses two challenges that the fiscal decentralisation and economic growth nexus faces – namely, endogeneity problems and inaccurate measurement of fiscal decentralisation. We introduce novel instrumental variables based on common legal system origin, common federal system, geographical position and relative country size. The positive relationship between fiscal decentralisation and economic growth that we find remains valid when using these instrumental variables. Using fiscal decentralisation measures that better reflect the autonomy of subnational governments changes this relationship. This finding, however, is the result of the accompanying changes in the sample rather than the use of these alternative measures themselves.     

Local fiscal distress and investment efficiency of local SOEs

In this paper, we use A-share listed firms between 2002 and 2010 to investigate the relationship between local fiscal distress and the investment efficiency of local SOEs, along with the effect of corporate tax payments on this relationship. We find a positive relationship between the extent of local SOEs' overinvestment and the fiscal distress of the corresponding local government where the enterprise and this relationship become stronger for firms that pay fewer taxes. The pattern of underinvestment among local SOEs was in contrast,and these relationships do not exist for non-SOEs or central SOEs. Moreover,we find that expanding a firm's investment scale leads to an increase in total taxes paid, including income and turnover taxes, which further result in more local fiscal revenue. Overall, we conclude that local governments have an incentive to increase fiscal revenue when faced with fiscal distress by raising the investment scale of local SOEs and that the incentives and effects of such interventions appear to be stronger among firms that contribute less to local fiscal revenue.ó 2013 Production and hosting by Elsevier B.V. on behalf of China Journal of Accounting Research. Founded by Sun Yat-sen University and City University of Hong Kong.     

The impact of securitization on credit rationing: Empirical evidence

We study whether banks’ involvement into different types of securitization activity – asset backed securities (ABS) and covered bonds – in Spain influences credit supply before and during the financial crisis. While both ABS and covered bonds were hit by the crisis, the former were hit more severely. Employing a disequilibrium model to identify credit rationing, we find that firms with banks that were more involved in securitization see their credit constraints more relaxed in normal periods. In contrast, only greater covered bonds issuance reduces credit rationing during crisis periods whereas ABS aggravates these firms’ credit rationing in crisis periods. Our results are in line with the theoretical predictions that a securitization instrument that retains risk (covered bond) may induce a more prudent risk behavior of banks than an instrument that provides risk transferring (ABS).     

Impact of the TARP financing choice on existing preferred stock

The October 14, 2008 TARP program mandated a forced issuance of TARP preferred stock by the largest U.S. banks. Soon after, many smaller banks were not forced but chose to issue TARP preferred stock after being approved for issuance. We investigate the impact of TARP preferred issuance upon bonds, preferred stock, and common stock. In particular, we focus upon two different types of outstanding preferred stock. These two different types of preferred stock are (1) trust preferred stock, which is senior to TARP preferred stock, and (2) non-trust preferred stock, which has equal claim to TARP preferred stock. We present competing theories for expecting that trust preferred should enjoy greater or lesser returns relative to non-trust. Consistent with the priority rule theory, but inconsistent with the default theory, we find that trust preferred enjoyed greater benefits from TARP issuance than did non-trust preferred for both forced and non-forced banks on the October 14 TARP announcement date. In contrast, there is no clear priority rule effect on the approval dates for non-forced banks.     

The effect of seasonal variations in auditor workload on local government audit fees and audit delay

Prior studies of government audit fees and audit delay (elapsed time from fiscal year end (FYE) to date of the audit report) employ a dichotomous variable to control for seasonality. However, a single variable does not appear to fully capture the effects of seasonality on audit fees or audit delay in the US local government sector. We compare the effects of FYEs commonly observed by US local governments (i.e., June 30, September 30, and December 31) on the audit fees and audit delay of 302 cities and counties for fiscal 1993. Our findings indicate that governments with June FYEs incur lower fees than do governments with either September or December FYEs. We also find that June and December governments sustain equivalent (and maximal) audit delay, and that September governments experience minimal delay. The results show that, in terms of fees and delay, December 31 is the least desirable of the FYE dates commonly found in the US local government arena. Our findings further suggest that audit fees may influence audit delay, when considered in a seasonal context.     

Fiscal Rules and Government Financing Costs

This paper assesses the effect of fiscal rules on sovereign bond spreads over the short and medium term, for 34 advanced countries and 19 emerging market economies, over the period 1980–2016. Our results, based on impulse response functions, show that the dynamic impact of fiscal rules on sovereign yield spreads is negative and statistically significant, at around 1.2–1.8 percentage points, implying lower government borrowing costs. This result stems essentially from the advanced economies subsample. We also find that more fiscally responsible countries are the ones for which a fiscal rule reduces the government's borrowing costs. Moreover, in times of recession, a fiscal rule leads financial markets to reduce the risk premiums on government bonds. Finally, when it comes to design features of fiscal rules, independent monitoring of compliance to the rule, done outside government, also reduces sovereign spreads.     

财政存款、银行竞争与僵尸企业形成

银行以优惠利率贷款为低质企业"输血",是企业僵尸化的重要成因。然而,基于中国背景的文献,对银行"输血"动机的研究并不充分,本文从地方财政存款影响银行信贷分配的视角,分析僵尸企业形成的内在机理。首先,通过构建理论模型对银行竞争财政存款及影响企业融资和投资绩效进而僵尸化的逻辑进行刻画,而后依据省份财政存款、银行竞争与微观企业财务数据,对理论推论进行了验证。研究发现,财政存款占当地存款比重越大,企业僵尸化概率越高,并且银行竞争助长了企业僵尸化。此外,基于工具变量估计处理了核心变量的内生性问题,并进行了多种稳健性检验。机制检验表明,财政存款的信贷分配效应,促使企业过度投资,导致经营绩效恶化,进而提高了企业僵尸化概率,银行竞争则会加剧该效应。本文拓展了财政存款的经济效应与僵尸企业形成方面的文献,对于僵尸企业治理有一定参考意义。     

财政存款、银行竞争与僵尸企业形成

银行以优惠利率贷款为低质企业“输血”,是企业僵尸化的重要成因。然而,基于中国背景的文献,对银行“输血”动机的研究并不充分,本文从地方财政存款影响银行信贷分配的视角,分析僵尸企业形成的内在机理。首先,通过构建理论模型对银行竞争财政存款及影响企业融资和投资绩效进而僵尸化的逻辑进行刻画,而后依据省份财政存款、银行竞争与微观企业财务数据,对理论推论进行了验证。研究发现,财政存款占当地存款比重越大,企业僵尸化概率越高,并且银行竞争助长了企业僵尸化。此外,基于工具变量估计处理了核心变量的内生性问题,并进行了多种稳健性检验。机制检验表明,财政存款的信贷分配效应,促使企业过度投资,导致经营绩效恶化,进而提高了企业僵尸化概率,银行竞争则会加剧该效应。本文拓展了财政存款的经济效应与僵尸企业形成方面的文献,对于僵尸企业治理有一定参考意义。