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Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing

The Journal of finance (New York), 2014-10, Vol.69 (5), p.1961-2005 [Peer Reviewed Journal]

2014 American Finance Association ;2014 the American Finance Association ;Copyright Blackwell Publishers Inc. Oct 2014 ;ISSN: 0022-1082 ;ISSN: 1540-6261 ;EISSN: 1540-6261 ;DOI: 10.1111/jofi.12153 ;CODEN: JLFIAN

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  • Title:
    Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing
  • Author: BAGHAI, RAMIN P. ; SERVAES, HENRI ; TAMAYO, ANE
  • Subjects: Bond rating ; Capital market ; Capital markets ; Capital structure ; Cash ; Conservatism ; Credit rating ; Credit ratings ; Debt ; Financial investments ; Financial leverage ; Leverage ; Modeling ; Pricing ; Rating services ; Regression analysis ; Spread ; Studies
  • Is Part Of: The Journal of finance (New York), 2014-10, Vol.69 (5), p.1961-2005
  • Description: Rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009; holding firm characteristics constant, average ratings have dropped by three notches. This change does not appear to be fully warranted because defaults have declined over this period. Firms affected more by conservatism issue less debt, have lower leverage, hold more cash, are less likely to obtain a debt rating, and experience lower growth. Their debt spreads are lower than those of unaffected firms with the same rating, which implies that the market partly undoes the impact of conservatism on debt prices. This evidence suggests that firms and capital markets do not perceive the increase in conservatism to be fully warranted.
  • Publisher: Cambridge: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0022-1082
    ISSN: 1540-6261
    EISSN: 1540-6261
    DOI: 10.1111/jofi.12153
    CODEN: JLFIAN
  • Source: Alma/SFX Local Collection
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