Split Ratings, Bond Yields, and Underwriter Spreads

Jewell, Jeff; Livingston, Miles

doi:10.1111/j.1475-6803.1998.tb00679.x

Cited by 87 publications

(72 citation statements)

References 17 publications

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“…(1985), Perry et al (1988), and Liu and Moore (1987) find that yields on split-rated issues are not significantly different from yields on bonds with the lower rating from both agencies. In contrast, Jewell and Livingston (1998) find that yields on split-rated bonds are an average of the yields of the two ratings. Thompson and Vaz (1990) compare single-rated bonds to dual-rated bonds and find that two matching ratings reduce yields below those on bonds with the same rating from only one agency.…”

Section: Literature Reviewmentioning

confidence: 79%

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The Impact of Rating Agency Reputation on Local Government Bond Yields

Allen

Dudney

2007

J Finan Serv Res

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Section: Literature Reviewmentioning

confidence: 79%

“…al. 1985;Ederington 1986;Liu and Moore 1987;Kish and Hogan 1999;and Jewell and Livingston 1998). Beattie and Searle (1992) find a very high correlation between Moody's and S&P ratings (0.97) for a 1990 sample of 5,284 corporate bonds.…”

Section: Literature Reviewmentioning

confidence: 94%

The Impact of Rating Agency Reputation on Local Government Bond Yields

Allen

Dudney

2007

J Finan Serv Res

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“…As identified in previous works, both asset opaqueness and information asymmetry cause split ratings (Jewell and Livingston, 1998;Livingston et al, 2006Livingston et al, , 2007. However, a direct test of the latter is unavailable.…”

Section: Introductionmentioning

confidence: 89%

Asymmetric benchmarking in bank credit rating

Shen

Huang

Hasan

2012

Journal of International Financial Markets, Institutions and Mo

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a b s t r a c tThis study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor's from 86 countries during 2002-2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.

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“…However, all of these studies had somewhat limited sample sizes. Jewell and Livingston (1998) use a large sample to show that the market does indeed price split ratings as unique rating classes. Table 20.…”

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confidence: 99%

A Comparison of Bond Ratings from Moody's S&P and Fitch IBCA

Jewell¹,

Livingston

1999

Financial Market

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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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Split Ratings, Bond Yields, and Underwriter Spreads

Cited by 87 publications

References 17 publications

The Impact of Rating Agency Reputation on Local Government Bond Yields

The Impact of Rating Agency Reputation on Local Government Bond Yields

Asymmetric benchmarking in bank credit rating

A Comparison of Bond Ratings from Moody's S&P and Fitch IBCA

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