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Municipal Bond Tying Contract and Issuance Interest Rate Anomaly

【Authors】
WANG Jianfeng & WU Jing
【WorkUnit】
University of International Business and Economics, 100029.
【Abstract】

Given that the factor market has yet to fully operate on the market basis, local governments have the ability to intervene in bank decision making and the motives of local governments are not verifiable, this paper defines the municipal bond transaction between local governments and banks as “tying contract with administrative intervention”, and explains the municipal bond issuance interest rate anomalies in China. Furthermore, we use 3824 pieces of municipal bond issuance data from 2015 to 2018 to test the theoretical hypothesis and draw the following conclusions: First, under the influence of economic reciprocity mechanism, the more economic resources the local government controls, the more prominent the anomaly of municipal bond issuance interest rate is. Second, under the influence of the administrative intervention mechanism, the stronger the intervention ability of the local government is, the more distorted the income distribution proportion of the economic reciprocity tying contract is. And fiscal pressure of local government can promote the effect of administrative intervention. Third, the effectiveness of the administrative intervention mechanism decreases with the improvement of institutional quality. This paper is not only conducive to the improvement of relevant policies, but also sheds light on the internal correlation between financial markets and other factor markets.


JEL:D02, E43, G12

【KeyWords】
Municipal Bond, Tying Contract, Economic Reciprocity, Administrative Intervention, Institutional Quality