Topic: Regulatory Enforcement on Public Disclosure and Connected Investors in Corporate Bond Issuance

Speaker: Lei Zhang

Date & Time: 08:00-09:30 Friday, October 20, 2023

Venue: Tencent Meeting (ID: 617 416 945)

Organizers: School of Accounting, Dongbei University of Finance and Economics, P.R. China & Liaoning Capital Market Finance and Accounting Graduate Innovation and Academic Exchange Center

Abstract:

We analyze whether regulatory comment letters (CLs) negatively affect corporate bond issuance and whether connected investors’ participation in the issuance could mitigate the CLs’ negative impact. Using a hand-collected dataset of CLs issued by China’s bond market regulator before the bond issuance, we find that issuers are less likely to issue bonds after receiving CLs, suggesting that the regulator’s concerns about issuers’ public disclosures negatively affect the issuance. However, for the bonds that are issued successfully, we find that connected investors receive larger allotments for the bonds from CL-recipients than non-CL-recipients, suggesting that connected investors increase their participation to mitigate CLs’ negative effect on the bond issuance. Moreover, the connected investors are financial institutions that have a prior lending relationship with the issuers. Their increase in bond purchase from the CL-recipient is subsequently rewarded by the issuer with more banking business, indicating that they have a quid pro quo relationship. We also find that connected investors’ increase in bond purchase from the CL-recipient does not lead to better ex-post bond performance, refuting the notion that connected investors’ purchase is motivated by superior private information.

Introduction of Speaker:

Lei Zhang, Assistant professor of Accounting from Beedie School of Business at Simon Fraser University in Canada. Professor Zhang graduated with a PhD in Accounting from the University of British Columbia in Canada in 2018. Research interests include Security Regulation and Enforcement, Bank Loan Contracts, Auditing, etc. In recent years, multiple papers have been published in international journals with high impact factors such as Review of Accounting Studies, Journal of Financial and Quantitative Analysis, Journal of Business Finance & Accounting, etc. Professor Zhang currently serves as an anonymous reviewer for multiple authoritative journals such as CAR, FRL, and JFQA.

Special Attention:

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