Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets |
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| Authors: | HUI CHEN ZHUO CHEN ZHIGUO HE JINYU LIU RENGMING XIE |
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| Institution: | 1. Correspondence: Zhiguo He, University of Chicago Booth School of Business, 5807 South Woodlawn Ave., Chicago, IL 60637 and NBER;2. e-mail: zhiguo.he@chicagobooth.edu. |
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| Abstract: | We provide causal evidence on the value of asset pledgeability by exploiting a unique feature of Chinese corporate bond markets: bonds with identical fundamentals are traded on two segmented markets with different rules for repo transactions. Using a policy shock that rendered AA+ and AA bonds ineligible for repo on one market only, we compare how bond prices changed across markets and rating classes around this event. When the haircut increases from 0% to 100%, bond yields increase by 39 bps to 85 bps. These estimates help us infer the magnitude of the shadow cost of capital in China. |
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