In this paper, we examine the real effect of financial reform on cost of debt and debt characteristics. To address endogeneity concerns, we explore the exogenous variation in bond market liberalization generated by a quasi-experiment, China’s Bond Issuance Reform in January 2015, which substantially alters the issuance system in the corporate bond market. Employing a difference-in-difference method, we mainly find the Reform reduces the cost of bond by approximately 52.4% and further raises the public debt over bank loans and lengthens the debt maturity, which may help to reduce the exposure to liquidity shock during economic downturns and simultaneously not pose additional risks of higher debt burden. The paper sheds lights for policymakers who aim to alleviate financial constraints and boost real growth through capital market liberalization.