Bond for Employment: Evidence from China

Area: Entrepreneurship and Fintech, International Macroeconomics and Finance, Labor and Finance.

We examine how government regulation and political consideration affect firm access to bond market in China. In a large firm-level dataset, we find that under China’s approval-based issuance system, larger employers have a significantly higher chance of bond issuance. This employment effect is more pronounced in times of worsening local labor markets, economic growth slowdown, credit tightening, or in places where govern-ment officials have stronger career incentives. Moreover, the employment favoritism in issuance biases bond credit allocation towards underperforming firms with a large em-ployment size. Finally, the beneficial effects of bond issuance on firm performance also diminish with employment size.