Bond Defaults and Reputation of Underwriters under Different Issuing Mechanisms

The registration issuing system has been implemented in China’s capital market since February 2023. The lower the entrance thresholds to a market, the higher the due diligence requests for financial intermediaries serving as market gatekeepers. The unique bond market structure in China, the registration issuing system has been used in the inter-bank bond market versus the approval issuing system was used in the exchange bond market, provides a valuable quasi-natural experimental sample for studying the mechanism of financial intermediation, which can provide referential experiences for the healthy and orderly development of China’s stock market under the registration issuing system. This paper studies bond defaults from the perspective of underwriters. Our study found that the higher the reputation of the underwriter, the lower the probability of default of the bond it underwrites, the underwriter has played its due role. The underwriter reputation mechanism can perform better in the registration issuing system, however, its functionality still relies on the external governance and the internal governance.