Measuring Abnormal Bond Performance

Bessembinder, Hendrik; Kahle, Kathleen M.; Maxwell, William F.; Xu, Danielle

doi:10.2139/ssrn.650883

Cited by 145 publications

(165 citation statements)

References 49 publications

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“…This method, as Bessembinder et al . () conclude, has the disadvantage of high correlations between bonds issued by the same firm. We therefore cluster standard errors by time and firms when running regressions in the main tests.…”

Section: Resultsmentioning

confidence: 91%

“…Following Bessembinder et al . (), we form corporate bond portfolios based on credit rating and time to maturity. We classify six rating groups – AAA, AA− to AA+, A− to A+, BBB− to BBB+, BB− to BB+, and below B+ – and three time to maturity groups – 0 to 8 years, 9 to 11 years, and 12+ years .…”

Section: Methodsmentioning

confidence: 99%

“…As Bessembinder et al . () suggest, the use of these databases would lower the statistical power of the empirical tests, leading to less reliable results. Another disadvantage of these databases is that it considerably limits their sample sizes and restricts them from separating the dividend signalling and wealth transfer effect…”

Section: Introductionmentioning

confidence: 99%

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When are dividend increases bad for corporate bonds?

Wei

Truong

2019

Accounting & Finance

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Employing an event study approach, we examine 5,574 bond return reactions to unexpected quarterly dividend change announcements in the U.S. corporate bond market over the period 2002-2014. On average, bond price reaction is in the same direction as dividend changes, which supports the hypothesis that dividend changes signal future firm performance. However, the price reaction varies significantly in the spectrum of bond's risk. Importantly, we document that some bondholders react negatively to unexpected dividend increases, indicating a wealth transfer effect. Such wealth transfer effect is most likely to occur in very high risk bond approaching maturity issued by firms with a low level of cash and incorporated outside Delaware.

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Section: Resultsmentioning

confidence: 91%

Section: Methodsmentioning

confidence: 99%

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When are dividend increases bad for corporate bonds?

Wei

Truong

2019

Accounting & Finance

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“…In a bond event study context, Bessembinder et al . () argue against employing a randomly selected bond credit spreads, as the dependent variable will be less subject to bond‐specific pricing variability, and we expect this to also hold true in levels‐based tests we employ. We also include equity volatility as a pivotal control variable in our pricing and loss forecasting models, given evidence in Campbell and Taksler () on its importance as a credit risk predictor.…”

mentioning

confidence: 98%

Financial statement recasting and credit risk assessment

Batta

Ganguly

Rosett

2012

Accounting & Finance

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This article examines the importance of adjustments to corporate financial statements for credit risk assessment. Prior research has tended to examine individual adjustments one at a time. As correlations among adjustments and control variables may bias inferences when researchers examine a single adjustment and ignore other adjustments, our results provide important new information about previous research by documenting whether or not such bias exists. We find that financial statement recasting adjustmentswhich aim to better reflect firms' indebtedness, financing costs and recurring earnings than reported financial numbersare reflected in bond yield spreads and have an economically significant impact on credit pricing and loss forecasting. Among individual adjustment categories, we find that those for off-balance-sheet leases, defined benefit pensions and securitized debt have an economically significant impact on credit pricing and loss forecasting. Accounting and Finance 54 (2014) 47-82 2 Of course, Moody's makes these adjustments for their own credit-ratings process, and the adjustment process involves a necessary degree of judgment and assumptionmaking. Further, rating-agency analysts may respond to incentives to bias their adjustments. While this opens the possibility that Moody's adjustments are systematically different in some way from common practice among analysts, this possibility must be weighed against the availability of data sources containing a comprehensive set of adjustments. To our knowledge, no such data sources are available in comparably sufficient scale.

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“…We calculate daily average bond yield spreads over the corresponding Treasury rate by weighing each bond transaction by its size (Bessembinder et al. ()). For each bond, we then average the daily yield spreads across the calendar month.…”

Section: Ratings Quality and Secondary Market Bond Spreadsmentioning

confidence: 99%

Ratings Quality and Borrowing Choice

Badoer¹,

Demiroglu²,

James

2019

The Journal of Finance

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Past studies document that incentive conflicts may lead issuer-paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer-paid ratings and raise corporate bond yields where the issuer-paid rating is more positive than benchmark investor-paid ratings. We also find that some firms with favorable issuer-paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the "lemons discount" associated with poor quality ratings. Overall, our results suggest that the quality of issuer-paid ratings has significant effects on borrowing costs and the choice of debt.

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Measuring Abnormal Bond Performance

Cited by 145 publications

References 49 publications

When are dividend increases bad for corporate bonds?

When are dividend increases bad for corporate bonds?

Financial statement recasting and credit risk assessment

Ratings Quality and Borrowing Choice

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