Does local gambling culture affect bond yield spread? Evidence from China

ABSTRACT

We study the effect of gambling culture in the province where a firm is located on its bond yield spread. Our findings suggest that a high gambling culture translates into a high bond yield spread. In addition, the impact is more salient for firms with high operating volatility and increased default risk. Overall, the results are consistent with the notion that when firms are located in high gambling culture provinces, they are riskier, and thus bond investors ask for a high bond yield.

KEYWORDS:

• Gambling culture
• risk-taking
• bond yield spread
• default risk

JEL CLASSIFICATION:

• G10
• O18

Acknowledgments

We acknowledge the financial support by the National Social Sciece Youth Fund (Grant No. 21CGL012).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For aggregate sales, the amount is approximately 5,114 billion yuan in 2018. When compared to 1,063 billion yuan in 2008, there is a five times increase from 2008 to 2018.

² While the endogeneity is less likely, it could be due to missing variables. The treatment of endogeneity can mitigate the concern that we may include all necessary control variables in Equation (1)(1) $\begin{array}{c}SPREA{D}_{i,j,t}={\beta }_0+\text{break}{\beta }_1\ast {\left(LOTTERY1,LOTTERY2,orLOTTERY3\right)}_{i,t}\\ \text{break}+CONTROL+INDUSTRY+YEAR+PROVINCE+{\mu }_{i,j,t}\end{array}$(1) . The use of lagged value (four years lag) of lottery as an instrument follows Hilary and Hui (2009), Callen and Fang (2020), and Chen et al. (2014).

Additional information

Funding

Funding This work was supported by the National Social Science Youth Fund [21CGL012].