Abstract

Since 2014, the Chinese government has sanctioned corporate bond defaults of both state-owned and non-state-owned firms, which renders the country’s firms no longer immune to bankruptcy. Actual defaults soared in 2015, and have again spiked since the onset of the global pandemic. This study investigates the impact of state ownership on corporate governance mechanisms on default risk of Chinese firms. There are some similarities observed: a) a non-linear relationship between inside ownership and default risk is observed for both state-owned and non-state-owned firms; b) Institutional ownership serves as a monitoring mechanism that reduces default risk, irrespective of state ownership. There are also some striking differences: non-state-owned firms with more independent boards are associated with higher default risk, while state-owned firms with larger boards and less independent boards have lower default risk. Pandemic effects are less severe for state-owned firms.