Author(s)

Zhihao Liu ¹

Affiliation(s)

¹ International Economics and Trade, University of Nottingham Ningbo, Ningbo, Zhejiang, 315100, China

Corresponding Author

Zhihao Liu

ABSTRACT

At present, the credit stratification trend of the real estate sector has increased the credit risk of real estate private enterprises after the “three red lines.” Although the credit spreads of corporate bonds issued by state-owned real estate companies are relatively stable, the credit spreads of private real estate companies have shown a significant increase. Therefore, it is necessary to research credit spreads of corporate bonds issued by real estate companies. As of August 31, 2021, the weighted average spread of all real estate entities is 802bp, and the weighted middle space of the real estate sector corresponds to an expected default rate of 7-8%. The real estate industry is involved in a wide range of areas related to the financial system. Therefore, under the government's macro-tone control, the hidden default rate in the current real estate market is more serious. Under the background of the economic cycle, many real estate companies in China have suffered credit rating downgrades due to the deterioration of their operating performance, making the credit risk of real estate more pessimistic. Therefore, research on the influencing factors of credit spreads can provide experience and reference for China's corporate bonds issued by real estate companies to a certain extent. This article takes the credit spreads of corporate bonds issued by real estate companies as the research object. The scope of the selected bond issuers is listed real estate companies. The research angles are macro-level, real estate industry level, and individual bond level. During December 2019, the trend characteristics of corporate bonds credit spreads in various economic cycle stages are analyzed, a multiple regression model is established, and the regression results are tested and analyzed. It is concluded that the credit spread of corporate bonds issued by real estate companies has counter-economic cycle characteristics. There are three main innovation points: one is an analysis based on the economic cycle theory, the other is the selection method of risk-free interest rates, and the third is the use of relevant industry-level influencing factors to complete the analysis.

KEYWORDS

Economic cycle theory, Real estate industry, Corporate bonds, Credit spread, Dimensional analysis

CITE THIS PAPER

Zhihao Liu, Influencing Factors of Credit Spread of Corporate Bonds Issued by Real Estate Companies Based on Economic Cycle Theory. Financial Engineering and Risk Management (2022) Vol. 5: 75-85. DOI: http://dx.doi.org/10.23977/ferm.2022.050112.

REFERENCES

[1] Shang Yuting. (2020). An Empirical Study on the Influencing Factors of Credit Spreads of Real Estate Companies (Master's Thesis, Shandong University). https://kns.cnki.net/KCMS/detail/detail.aspx?dbname =CMFD202002&filename=1020067132.nh
[2] Gao Jie, Ma Jun & Li Xingfeng. (2020). Research on the Influencing Factors and Countermeasures of the Credit Spread of Urban Investment Corporation Bonds--Based on the Perspective of Local Government Administrative Level. Journal of Chang'an University (Social Science Edition) (01), 70-82 . doi:CNKI:SUN:XBJZ.0.2020-01-008.
[3] Xu Rong & Chang Jialu. (2018). Research on the influence path of corporate bond issuance on company value. Financial Supervision Research (09), 81-94. doi:10.13490/j.cnki.frr.2018.09.006.
[4] Gilchrist, Simon, and Benoit Mojon. 2018. Credit risk in the Euro area. The Economic Journal 128: 118–58.
[5] Gilchrist, Simon, and Egon Zakrajšek. 2012. Credit spreads and business cycle fluctuations. American Economic Review 102: 1692–720.
[6] Gilchrist, Simon, Vladimir Yankov, and Egon Zakrajšek. 2009. Credit market shocks and economic flfluctuations: Evidence from corporate bond and stock markets. Journal of Monetary Economics 56: 471–93.
[7] Geoffrion, A. M. . (1989). The formal aspects of structured modeling. Operations Research, 37(1), 30-51.
[8] Geoffrion, A. M. . (2013). Structured Modeling. Springer US.
[9] Mueller, Philippe. 2009. Credit spreads and real activity. Paper present at EFA 2008 Athens Meetings Paper, Athens, Greece, August 27–30.
[10] Robert, C., Merton, and, Paul, & A., et al. (1974). Fallacy of the log-normal approximation to optimal portfolio decision-making over many periods. Journal of Financial Economics, 1(1), 67-94.
[11] Kobayashi, Takeshi. 2017. Regime-switching dynamic Nelson-Siegel modelling to corporate bond yield spreads with time-varying transition probabilities. Journal of Applied Business and Economics 19: 10–28.

Sponsors, Associates, and Links

---

• Information Systems and Economics
  
  
• Accounting, Auditing and Finance
  
  
• Industrial Engineering and Innovation Management
  
  
• Tourism Management and Technology Economy
  
  
• Journal of Computational and Financial Econometrics
  
  
• Accounting and Corporate Management
  
  
• Social Security and Administration Management
  
  
• Population, Resources & Environmental Economics
  
  
• Statistics & Quantitative Economics
  
  
• Agricultural & Forestry Economics and Management
  
  
• Social Medicine and Health Management
  
  
• Land Resource Management
  
  
• Information, Library and Archival Science
  
  
• Journal of Human Resource Development
  
  
• Manufacturing and Service Operations Management
  
  
• Operational Research and Cybernetics