Abstract: In order to find out whether and how the emerging corporate bond default events affect newly issued bonds’ pricing, this paper studies the credit bonds issued from 2016 to 2020 and reaches three conclusions: (1) Default significantly increases the cost of newly issued bonds for the issuers within the same industry, and these results remain statistically significant after controlling bond and firm characteristics and a set of fixed effects, changing the event window, and implementing propensity score matching; (2) The underlying mechanism is enabled by investors’ “panic pricing effect”. Specifically, issuers who are lacking information disclosure, non-state owned, low-rated, and exposed to a poor legal environment suffer more from the externality; (3) The credit-event driven risk premium is more obvious in the samples of the same type of default bond, and the samples affected by the industry’s first default. The number of defaults is also significantly priced. From the perspective of corporate financing cost, this paper empirically contributes to understanding the intra-industry externalities of credit risk.

Key words: corporate default, financing cost, panic pricing effect, intra-industry externalities