The Impact of Implicit Government Guarantee on Credit Rating of Municipal Investment Bonds

TL;DR

This study investigates how implicit government guarantees influence the credit ratings of municipal investment bonds, revealing that such guarantees generally enhance ratings, especially in less developed western regions.

Contribution

It introduces a novel application of text mining and the PMC index model to quantify implicit government guarantees and analyze their impact on bond credit ratings.

Findings

Implicit government guarantees improve credit ratings.

The effect is stronger in less developed western regions.

Government influence can bias credit evaluations.

Abstract

One type of bond with the most implicit government guarantee is municipal investment bonds. In recent years, there have been an increasing number of downgrades in the credit ratings of municipal bonds, which has led some people to question whether the implicit government guarantee may affect the objectivity of the bond ratings? This paper uses text mining methods to mine relevant policy documents related to municipal investment bond issuance, and calculates the implicit guarantee strength of municipal investment bonds based on the PMC index model. It further analyzes the impact of the implicit guarantee strength of municipal bonds on their credit evaluation. The study found that the implicit government guarantee on municipal investment bonds does indeed help to raise the credit ratings assigned by credit rating agencies. The study found that, moreover, the government's implicit guarantee has a more pronounced effect in boosting credit ratings in less developed western regions.