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On the system constraint conversion of the corporate bond market in China

Author: ChenRui From: www.yourpaper.net Posted: 2009-03-31 05:42:04 Read:
Abstract: The binding institutional arrangements impact on the corporate bond markets of the participating main strategic behavior and interaction mode, and thus the formation of a very different market development. China's corporate bond market development lags behind the real source of alternative market constraint system is that the system of government constraints. In order to achieve the effective allocation of financial resources, it is necessary to actively promote the the government constraint system to a market constraint system conversion, choose to participate in the main amendments to the corporate bond market behavior, to form a healthy market interaction mechanism.
Keywords: corporate bonds and system of government constraints, market constraints
In the process of the development of China's corporate bond market, the government-led market system constraints characteristic is very obvious, both the initial rapid development, or nosedive shrinking rapidly, until the recent encouraging uplift momentum, the government is only visible hand play a decisive role. But it is also due to the strong intervention of the government market, has led to the corporate bond market itself can not form a binding system, the market each participating body behavior choices and the interactive mode showed great distorted. Various strategies involved in the main-depth study of the corporate bond market behavior choices, we recognize different binding system to arrange the key to have a different impact on the market. This paper is trying to explore the different binding institutional arrangements in the framework of game theory analysis, how the impact of the corporate bond market each participate in the behavior of the main choice, and based on the analysis concluded: only to achieve a fundamental change from the constraints institutionally conversion from government constraint system to a market constraint system behavior, can radically change the corporate bond market players select mode, so as to promote the sustained and healthy development of the corporate bond market.
I. Introduction
This paper the binding system analysis framework is built on the basis of the understanding of the New Institutional Economics institutions connotation, that the system is closely related to the specific acts set normative system. In this paper, the so-called binding system arrangement in the the system abstraction connotation based on specific, to study specific issues and do have framed the concept of purpose. So-called binding system, for specific objectives and constraints of the object, by a set of rules (formal and informal) to participate in its implementation mechanisms that constitute the institutional equilibrium. By definition, we can clear the binding elements of the system, including the specific constraints objectives and constraints object (that is, the object constraints), rules (including formal and informal), organizations or individuals (that is, the implementation of the main constraints), and system implementation mechanism. Different binding institutional arrangements would choose to have different effects on the behavior of the market players, in turn caused by the differences in market efficiency. On the corporate bond market, the system of binding arrangements in order to ensure effective market resource allocation mechanism, so as to implement the necessary institutional constraints on corporate debt issuance behavior, in order to reduce information asymmetry between the investor and the enterprise reverse selection and moral hazard problems. Thus, the binding system to arrange most important implementation mechanism is able to make a good identification of the credit status of the enterprise, in order to ensure the effective implementation of market debt covenants, both to protect the interests of the investor's investment, while not unworthy of credit to good corporate exclusion from the market and hinder the normal development of the corporate bond market.
According to rules binding institutional arrangements (formal and informal), the game in their strategic behavior select different implementation mechanisms, and thus the formation of different systems-binding system of the corporate bond market is divided into two categories, government system constraints and market discipline system. As to whether there are other possible binding system arrangement, the article does not in depth. The same time, the two basic assumptions: (1) Assuming that the legal protection of creditors will be strictly enforced, the issuers of the debt obligations of the hard constraints of the law, and that if not overdue debt service, hair debt companies will face the statutory bankruptcy liquidation; (2) assumptions The two constraint system have the same goal, namely to reduce the information asymmetry, adverse selection and moral hazard problems, resource allocation mechanisms to ensure that the corporate bond market, which an assumption that in order to eliminate the diversified objectives of the Government of the model studies may affect.
, Corporate bonds, government constraints Institutional Analysis
The premise of the system of government of the corporate bond market constraints analysis, it is assumed that the government reduce information asymmetry, adverse selection and moral hazard problems of motivation, adequate and effective to achieve the corporate bond market in resource allocation mechanism. To achieve this objective, the Government, through the development of administrative rules and regulations, the use of of Government management tools issuer to issuer companies eligible, the price of the bond issue and the number of shares to be issued, the implementation of strict restrictions on high default risk enterprises may constitute market access restrictions to protect investment 's investment interests. As a result, the administrative rules and regulations of the government, as well as a dynamic game process involved in the main body constituted by the government, business, investors and credit rating agencies and other market formed the mechanism of the implementation of the system of government constraints. Market participants, based on their different incentives and constraints to choose the best strategy behavior in order to achieve their own to maximize revenue.
Since corporate bonds Provisional Regulations promulgated in 1987, the institutional constraints of the corporate bond market in China has been a typical government-binding institutional arrangements. The issuance of corporate bonds, government approval system and the annual issuance amount plan. Strictly limited eligibility of issuers, non-state-owned or state-owned holding company barely qualified to issue corporate bonds, and from the beginning of 1994, local enterprises to issue corporate bonds was also limited. The restrictive provisions was also done on the basis of these restrictions on the price and the number of corporate bond issuance, the issue price of the bonds shall not exceed 40% of the same period of bank deposit rate corporate bonds issued by the number of one-time must and for purposes specified by the approval of the relevant government departments. Government of the administrative rules of the corporate bond market constraints, choose the optimal strategy of issuing bonds enterprises, investors and credit rating agencies had a significant impact.
The basic decisive factors affect corporate financing options in accordance with the general theory of financial, financing costs, depending on the financing costs of alternative financing sort, and then select the lowest cost financing. Theoretical and empirical studies have proven that, financing through the stock market, bond financing costs are lower than the cost of equity financing. Therefore, in most of the developed market economy countries, years of corporate bond financing scale usually 3-10 times the scale of the stock market financing. But in our country, because the government to cumbersome administrative approval procedures for the issuance of corporate bonds, thus greatly improving the non-financial corporate bond issuance costs, such as time cost, and the cost of risk due to the presence of uncertainty. Although government bond issuance price controls, reducing the financial costs of the corporate bond financing, but due to the significant increase in the non-financial costs, the financial cost of corporate bond financing and non-financial costs of, and much higher than the cost of equity financing. This makes most enterprises despite strong internal demand for bond financing, but had to retreat in the face of high financing costs to seek new ways of financing.
Government by strict administrative approval, apply to issuer companies to implement rigorous screening, screening criterion is to select the wholly state-owned or special enterprise with a market monopoly background, in order to achieve the goal of the Government of the constraints of the corporate bond market, that is, reduce the risk of default of the bond market, and to protect the interests of investors. The realization of this goal, however, is based on the expense of capital use efficiency at the cost. Price controls of the corporate bond market, so these special corporate access to relatively cheap capital, causing excess demand for capital. At the same time, these enterprises have a "quasi-governmental" credit background, it does not in itself there is a hard and fast credit constraint pressure. They believe that, even if there is a corporate credit crisis, the national debt will bear the final responsibility. These two reasons will inevitably lead to inefficient use of capital, can not achieve the optimal allocation of financial resources.
For investors, due to the implementation of strict government issuers eligible for approval, and be allowed to issue bonds businesses will also have the special nature of the "quasi-governmental", which also convey to investors the information : investing in these corporate bonds is no risk of default. Enterprise if there is a breach of contract for the approval of the Government of the eligibility of corporate bond issuance, in fact, assumed the responsibility of the implicit guarantee of the bonds, the investors will inevitably government approval link problems, and therefore must be borne by the Government debt servicing obligations. In practice, the government also does not let investors disappointed, many the debt issuance enterprise can not due to return debt service, last borne down by the government. The resulting consequences, the information borne by investors to collect, analyze and identify the responsibility he was replaced approval system under the government, which led directly to the lack of investor demand for market information, information gathering, analysis, and the ability to identify lack of risk awareness is low, the
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