Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment
China Finance Review International
ISSN: 2044-1398
Article publication date: 19 May 2020
Issue publication date: 22 September 2020
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.
Keywords
Acknowledgements
We thank the editors and an anonymous reviewer for their detailed, thoughtful, and constructive comments, and the Outstanding Top Talent Fund of Anhui Province (Grant Nos. gxfx2017104) and the Key Discipline Project Fund of Chaohu University (Grant Nos. ZDXK-201802) for their financial support.
Citation
Guo, H. and Wu, K. (2020), "Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment", China Finance Review International, Vol. 10 No. 4, pp. 473-496. https://doi.org/10.1108/CFRI-06-2019-0083
Publisher
:Emerald Publishing Limited
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