Does financial cycle affect corporate bond ratings? - Evidence from macro and micro interaction effects

In recent years, China's bond market defaults frequently, and the credibility of credit rating agencies needs to be tested. The disorganized bond market increases the systemic risk in China, which is not conducive to the smooth operation of the social economy. This paper studies effects of financial cycle on credit rating by constructing a game model between enterprises and credit rating agencies. Regression test results of A-share listed companies from 2010 to 2019 show that the financial cycle can promote the willingness of enterprises to hold bonds, which affects the further game between enterprises and rating agencies and promotes the "pro-cyclical" upgrade of ratings. Further exploration shows that large-scale, non-listed and non-industrial companies are more sensitive to financial cycles. The contributions of this paper are as follows: First, this paper discusses the mechanism by which financial cycle affects credit rating through the influence of corporate bond financing behaviour, and expands a new research perspective for the study of how macroeconomic factors affect credit rating; Second, it clarifies the logic of credit rating changes. In the modelling process of this paper, the influence of complex endogeneity is fully taken into account, and it is verified that when the external credit supply changes, corporate financing decisions will be affected first, and credit ratings will be affected later. The research conclusions of this paper have important implications for how to regulate the behaviour of rating agencies and improve the quality of ratings.