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Reassessing bond pricing efficiency: The effects of deregulating mandatory bond ratings

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  • Lu, Lei
  • Liu, Qingfu
  • Wang, Zilu
  • Luo, Sumei

Abstract

We analyze the negative impact of credit bond issuance ratings on pricing outcomes. Exploiting the exogenous shock from China’s removal of the mandatory bond rating for credit bond issuance, we employ an event study approach to trace out the consequences of lowering issuance thresholds on bond pricing. We show that firms voluntarily retaining bond ratings experienced credit spreads 10.2 percent higher than firms that abandoned ratings. Firms that dropped issuance ratings experienced significant improvements in bond rating quality, reductions in default risk, and enhanced secondary market liquidity. Our findings highlight the critical role that abandoning issuance ratings plays in improving credit bond pricing efficiency under the issuer-paid rating model.

Suggested Citation

  • Lu, Lei & Liu, Qingfu & Wang, Zilu & Luo, Sumei, 2026. "Reassessing bond pricing efficiency: The effects of deregulating mandatory bond ratings," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x26000107
    DOI: 10.1016/j.pacfin.2026.103064
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