Risk factors disclosure and cost of debt: evidence from China’s corporate bond market

This paper examines how risk factors disclosed in bond prospectuses affect corporate bond issuance costs. We find that bonds with lower credit ratings disclose more risk factors in their prospectuses, which in turn is associated with higher issuance costs. This effect is especially pronounced for firms with higher default risk, greater stock volatility, and lower profitability, particularly after the first default event in the corporate bond market. These findings are robust after addressing endogeneity and conducting robustness tests. Furthermore, sufficient risk disclosure makes bonds less likely to trade below the offering price on their first trading day.