IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04140847.html
   My bibliography  Save this paper

Regulatory versus Informational Value of Bond Ratings: Hints from History ..

Author

Listed:
  • Ludovic Moreau

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

A multivariate analysis can be used in order to investigate the relationship between bond yields, ratings and standard control variables. Replicating such a test on a number of cross-sections may evidence a possible impact of financial regulations relying on ratings. Datasets for American corporate bond issues allow a focus on two key events of the development of rating driven regulations: the valuation of bank and life insurance portfolios introduced in the 1930's and the net capital requirements for broker dealers introduced in the 1970's. The "value" of bond ratings does show some improvement once these regulations have been passed.

Suggested Citation

  • Ludovic Moreau, 2009. "Regulatory versus Informational Value of Bond Ratings: Hints from History ..," Working Papers hal-04140847, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140847
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140847
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04140847/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Asquith, Paul & Mullins, David W, Jr & Wolff, Eric D, 1989. " Original Issue High Yield Bonds: Aging Analyses of Defaults, Exchanges, and Calls," Journal of Finance, American Finance Association, vol. 44(4), pages 923-952, September.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Arnoud W. A. Boot & Todd T. Milbourn & Anjolein Schmeits, 2006. "Credit Ratings as Coordination Mechanisms," The Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 81-118.
    4. Edwin J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, February.
    5. Liu, Pu & Moore, William T, 1987. "The Impact of Split Bond Ratings on Risk Premia," The Financial Review, Eastern Finance Association, vol. 22(1), pages 71-85, February.
    6. Jorion, Philippe & Liu, Zhu & Shi, Charles, 2005. "Informational effects of regulation FD: evidence from rating agencies," Journal of Financial Economics, Elsevier, vol. 76(2), pages 309-330, May.
    7. Lawrence J. White, 2009. "The Credit Rating Agencies: Understanding Their Central Role in the Subprime Debacle of 2007-2008," Working Papers 09-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. W. Braddock Hickman, 1958. "Corporate Bond Quality and Investor Experience," NBER Books, National Bureau of Economic Research, Inc, number hick58-1, May.
    9. Darren J. Kisgen, 2006. "Credit Ratings and Capital Structure," Journal of Finance, American Finance Association, vol. 61(3), pages 1035-1072, June.
    10. Flandreau, Marc & Packer, Frank & Gaillard, Norbert, 2009. "Ratings Performance, Regulation and the Great Depression: Lessons from Foreign Government Securities," CEPR Discussion Papers 7328, C.E.P.R. Discussion Papers.
    11. Thompson, G Rodney & Vaz, Peter, 1990. "Dual Bond Ratings: A Test of the Certification Function of Rating Agencies," The Financial Review, Eastern Finance Association, vol. 25(3), pages 457-471, August.
    12. Liu, Pu & Thakor, Anjan V, 1984. "Interest Yields, Credit Ratings, and Economic Characteristics of State Bonds: An Empirical Analysis: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(3), pages 344-351, August.
    13. Fons, Jerome S, 1987. "The Default Premium and Corporate Bond Experience," Journal of Finance, American Finance Association, vol. 42(1), pages 81-97, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schaetzle, Dominik, 2011. "Ratingagenturen in der neoklassischen Finanzierungstheorie: Eine Auswertung empirischer Studien zum Informationsgehalt von Ratings," Arbeitspapiere 110, University of Münster, Institute for Cooperatives.
    2. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    3. Santos, Joao A.C., 2006. "Why firm access to the bond market differs over the business cycle: A theory and some evidence," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2715-2736, October.
    4. Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2010. "Corporate Bond Default Risk: A 150-Year Perspective," NBER Working Papers 15848, National Bureau of Economic Research, Inc.
    5. Jens Hilscher & Mungo Wilson, 2011. "Credit ratings and credit risk," Working Papers 31, Brandeis University, Department of Economics and International Business School.
    6. Jens Hilscher & Mungo Wilson, 2017. "Credit Ratings and Credit Risk: Is One Measure Enough?," Management Science, INFORMS, vol. 63(10), pages 3414-3437, October.
    7. Brogaard, Jonathan & Koski, Jennifer L. & Siegel, Andrew F., 2019. "Do upgrades matter? Evidence from trading volume," Journal of Financial Markets, Elsevier, vol. 43(C), pages 54-77.
    8. Xia, Han, 2014. "Can investor-paid credit rating agencies improve the information quality of issuer-paid rating agencies?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 450-468.
    9. Kisgen, Darren J. & Nickerson, Jordan & Osborn, Matthew & Reuter, Jonathan, 2020. "Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(3), pages 869-896, May.
    10. May, Anthony D., 2010. "The impact of bond rating changes on corporate bond prices: New evidence from the over-the-counter market," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2822-2836, November.
    11. Balasubramnian, Bhanu & Cyree, Ken B., 2011. "Market discipline of banks: Why are yield spreads on bank-issued subordinated notes and debentures not sensitive to bank risks?," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 21-35, January.
    12. Shoaib Ali & Attiya Yasmin Javid, 2015. "Relationship between Credit Rating, Capital Structure and Earning Management Behaviour: Evidence from Pakistani Listed Firms," PIDE-Working Papers 2015:121, Pakistan Institute of Development Economics.
    13. Thomas Mählmann, 2009. "Multiple Credit Ratings, Cost of Debt and Self‐Selection," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1228-1251, November.
    14. Stephanie Heck, 2022. "Corporate bond yields and returns: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 179-201, June.
    15. Becker, Bo & Milbourn, Todd, 2011. "How did increased competition affect credit ratings?," Journal of Financial Economics, Elsevier, vol. 101(3), pages 493-514, September.
    16. Liao, Hsien-Hsing & Chen, Tsung-Kang & Lu, Chia-Wu, 2009. "Bank credit risk and structural credit models: Agency and information asymmetry perspectives," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1520-1530, August.
    17. Luca Benzoni & Lorenzo Garlappi & Robert Goldstein, 2023. "Incomplete Information, Debt Issuance, and the Term Structure of Credit Spreads," Management Science, INFORMS, vol. 69(7), pages 4331-4352, July.
    18. Florian Kiesel, 2021. "It's the tone, stupid! Soft information in credit rating reports and financial markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(3), pages 553-585, September.
    19. David A. Ziebart & Sara A. Reiter, 1992. "Bond ratings, bond yields and financial information," Contemporary Accounting Research, John Wiley & Sons, vol. 9(1), pages 252-282, September.
    20. Eliza Xia Zhang, 2020. "The impact of cash flow management versus accruals management on credit rating performance and usage," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1163-1193, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-04140847. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.