Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment

Hongling Guo · Keping Wu

36 citations0/0 files storedChina Finance Review International

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Corporate Finance and Governance Financial Analysis and Corporate Governance Credit Risk and Financial Regulations

Abstract

Purpose This study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background. Design/methodology/approach Using panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost. Findings Our results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing. Research limitations/implications The results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing. Practical implications This paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market. Originality/value This paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1982Asymptotic Confidence Intervals for Indirect Effects in Structural Equation Models 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 1986Large Shareholders and Corporate Control 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 2002Investor Protection and Corporate Valuation 2004Information and the Cost of Capital

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