The Impact of Readability Of Risk Disclosure in Bond Prospectuses on Credit Risk Premium

This paper for the first time analyzes the impact of the readability of risk disclosure in bond prospectuses on the credit risk premium in the Chinese corporate bond market. In the empirical analysis, the collected textual data including 5194 corporate bond prospectuses and structured data related to the corporate financial factors and the bond characteristics from January 1, 2006 to December 31, 2021 are used to perform the fixed effect regression analysis. The empirical results show that increasing the readability of the risk disclosure chapter in the bond prospectus will increase the credit risk premium by raising the investors’ risk perception. Further tests demonstrate that ceteris paribus, the positive impact of the readability of risk disclosure in the bond prospectus on the credit risk premium will be weakened by implicit government guarantees carried by a state-owned issuer and be strengthened by better corporate business performance