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Default risk, state ownership and the cross-section of stock returns: evidence from China

Liu, L., Luo, D. and Han, L. (2019) Default risk, state ownership and the cross-section of stock returns: evidence from China. Review of Quantitative Finance and Accounting, 53 (4). pp. 933-966. ISSN 1573-7179

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To link to this item DOI: 10.1007/s11156-018-0771-0


We apply a structural model to estimate firm-level default risk in China and investigate the stock return predictability of default risk and the moderating effects of state ownership for the sample period from 2003 to 2015. We show unique evidence that in China, default risk is positively associated with expected stock returns and state ownership matters considerably to the return predictability of default risk. We find investors of state-owned enterprises (SOEs) are not compensated appropriately in China despite of their higher default risk exposure. Our empirical evidence supports the conjecture on shareholder advantages and suggests that a strong bargaining power of equity holders would have a negative impact on stock returns.

Item Type:Article
Divisions:Henley Business School > Business Informatics, Systems and Accounting
ID Code:79885


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