A split bond rating occurs when Moody's and Standard & Poor give different ratings to the same issue. We examine 1,277 public industrial bond issues, where 221 have split ratings, issued from 1980 through mid‐1993. For split‐rated industrial bonds, neither rating agency consistently gives higher ratings. Earlier studies find yields for split‐rated bonds to be priced as either the higher or the lower of the ratings. We find the yields on split‐rated bonds to be an average of the yields on the two ratings. Split ratings for industrial bonds appear to reflect random differences on the part of rating agencies. Our results differ from previous studies because we use a substantially larger sample and include high‐yield bonds. As long as a bond has an investment‐grade rating, the underwriter fees are found to be essentially the same for all rating categories. Below investment grade, the rating substantially affects the underwriter fee. Thus, split ratings for high‐yield bonds have an important effect on the underwriter spread.

Previous research has found that the bond market values the ratings of Moody's and Standard & Poor's. This paper extends earlier research by comparing the ratings of Moody's, Standard and Poor's, and Fitch IBCA. The authors examine a very large database with monthly observations of bonds and bond ratings over a five-year time period. The analysis focuses on comparing rating levels, rating changes, and the impact of ratings on bond yields. The results show that firms with publicly available Fitch IBCA ratings have higher ratings from Moody's and S&P than firms without Fitch IBCA ratings. The typical firm releasing a Fitch IBCA rating has a lower yield (controlling for Moody's and S&P rating), a more stable rating, and is more likely to receive an upgrade. For split-rated bonds (Moody's vs. S&P), Fitch IBCA serves as a tiebreaker. This evidence is consistent with the bond market valuing the ratings of all three raters-Moody's, Standard & Poor's, and Fitch IBCA. OVERVIEWBond ratings have long been considered important by government regulators, firms, and bond investors as an indicator of the credit risk of an issuer. In the academic literature, the consensus is growing that bond ratings convey useful information to the market.1 However, studies of bond ratings have been largely confined to the two largest raters-Moody's and Standard & Poor's (S&P).2 To some extent this limitation in the literature is logical since Moody's and S&P are the clear leaders in the credit rating industry. However, many firms are rated not only by the two large raters, but also by one or more smaller rating agencies such as Fitch IBCA or Duff and Phelps. The purpose of this paper is to compare the ratings of one of the smaller rating agencies, Fitch IBCA, to those of Moody's and S&P. By doing this we hope to see whether the market values Fitch IBCA ratings as well as those of Moody's and S&P.Moody's and Standard & Poor's follow a policy of rating most SEC registered, U.S. corporate debt issues. Thus, almost all large public bond issues have at least two ratings. This is true whether or not the issuing firm chooses to pay the rating agency for the rating. However, Fitch IBCA and Duff & Phelps, the other two "full service" credit rating agencies, provide ratings only when requested and paid. Thus, an issuing firm must actively seek out these costly ratings in order to obtain them. In addition, both Fitch IBCA and Duff and Phelps allow issuing firms to stop the release of a rating before it becomes public if the firm is not satisfied for some reason.1 Hand, Holthausen, and Leftwich (1992) and Jewell and Livingston (1998) among many others. 2 There are recent studies by Cantor and Packer (1995, 1996a Jeff Jewell and Miles LivingstonThere are several possible views of the potential benefits of seeking out additional ratings. First, an additional rating may not convey any incremental information beyond the Moody's and S&P ratings. According to this view, Moody's and S&P have all the necessary information to determine ratings and to properly ev...

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