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Does Split Rating Affect Corporate Bond Yields? Evidence from North America and Europe

Author

Listed:
  • Kolegova Irina

    (HTW Berlin -University of Applied Sciences, Treskowallee 8, 10318 Berlin, Germany)

  • Paientko Tetiana

    (HTW Berlin -University of Applied Sciences, Treskowallee 8, 10318 Berlin, Germany)

Abstract

The paper aims to determine the effect of split ratings on corporate bond yields. A Two-Sample t-Test was conducted for each risk category of bonds to assess the impact of split ratings. Using a sample of corporate bonds issued between January 2000 and May 2023, the study finds evidence that split-rated bonds exhibit higher yields. This suggests that investors demand greater compensation for the risk associated with split ratings, which stems from the informational opaqueness and uncertainty surrounding these instruments. The research also reveals that the magnitude of the difference between split ratings affects bond yields, with larger gaps leading to higher yields. The findings have significant implications for investors and issuers, emphasising the need to carefully evaluate split-rated bonds and consistent credit ratings. By enhancing our understanding of the relationship between split ratings and bond yields, this research promotes transparency and informed decision-making in the corporate bond market.

Suggested Citation

  • Kolegova Irina & Paientko Tetiana, 2025. "Does Split Rating Affect Corporate Bond Yields? Evidence from North America and Europe," Central European Economic Journal, Sciendo, vol. 12(59), pages 17-33.
    • Handle: RePEc:vrs:ceuecj:v:12:y:2025:i:59:p:17-33:n:1001
    DOI: 10.2478/ceej-2025-0002
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    References listed on IDEAS

    as
    1. Fernando Moreira & Sheng Zhao, 2018. "Do credit ratings affect spread and return? A study of structured finance products," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 205-217, April.
    2. Chen, Zhihua & Wang, Zhen, 2021. "Do firms obtain multiple ratings to hedge against downgrade risk?," Journal of Banking & Finance, Elsevier, vol. 123(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    split rating; bond yields; credit rating adjustments; solicit multiple ratings; credit rating agency (CRA);
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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