Abstract

We examine the debt advantages of wholly-owned state-owned enterprises (WSOEs), due to an implicit sovereign insurance against default. Our model explains conditions that increase those advantages in bond yields. In our global sample of bonds, we find that bond issues of WSOEs, have a 57 bps discount in their yield to maturity vis-à-vis comparable corporations. The effect is even larger when we benchmark against partial state-owned firms. This cheaper debt finance is stronger during crises yet disappears for sovereigns with low creditworthiness. This lower cost of debt “inflates” the profits of the median WSOE by 13%.