The Impact of Rating Agency Reputation on Local Government Bond Yields

Allen, Arthur C.; Dudney, Donna

doi:10.1007/s10693-007-0021-4

Cited by 22 publications

(13 citation statements)

References 15 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Consistent with prior literature, we identify whether the splits are the result of Moody's Investor Services (Moody's) assigning a higher rating versus Standard and Poor's (S&P's) assigning a higher rating with the omitted comparison category being joint ratings. Existing empirical evidence shows that the market reacts differently to split ratings as investors do not weight ratings equally (Cantor, Packer, and Cole ; Hauck and Neyer ; Livingston and Zhou ; Livingston et al, ) and that S&P is more likely to assign a higher rating (or positive outlook) relative to Moody's (Allen and Dudney ; Farmer, ; Kioko, Johnson, and Moldogaziev ). Negotiated sales are often used for more complex debt instruments.…”

Section: Methodsmentioning

confidence: 99%

Impact of Bankruptcy Eligibility Requirements and Statutory Liens on Borrowing Costs

Moldogaziev¹,

Kioko²,

Hildreth³

2017

Public Budgeting & Finance

View full text Add to dashboard Cite

While bankruptcy protection remains an instrument of last resort, a recent wave of petitions has aroused the interest of key participants in the municipal bond market. To date, 12 states unconditionally authorize municipalities to file for bankruptcy protection, 15 states require that municipalities satisfy certain threshold requirements, while the remaining 23 states either explicitly prohibit or have not specifically provided this authority to municipal governments. As bankruptcy protection rules influence bondholder risk exposures, we empirically test the significance of the state‐specific bankruptcy eligibility requirements on borrowing costs. In a representative sample of general obligation bonds, empirical results suggest that municipalities eligible to file for bankruptcy protection pay a premium. The premium is higher if issuers are unconditionally authorized to file for bankruptcy protection, especially for debt with longer maturities. Findings also show that there are benefits associated with statutory liens; however, these benefits diminish with maturity.

show abstract

Section: Methodsmentioning

confidence: 99%

Impact of Bankruptcy Eligibility Requirements and Statutory Liens on Borrowing Costs

Moldogaziev¹,

Kioko²,

Hildreth³

2017

Public Budgeting & Finance

View full text Add to dashboard Cite

show abstract

“…The literature on differences among credit rating agencies has shown that the type of criteria and the weighting of each criteria considered in a rating varies by agency (Cluff and Farnham 1984; Jewell and Livingston ; Moon and Stotsky ,; Livingston, Jie, and Zhou ; Allen and Dudney ). While S&P and Moody's both claim to use the same general categories of variables in determining ratings, Cluff and Farnham (1984) find that S&P tends to place more emphasis on economic base and demographic factors while Moody's weighs debt burden and other financial measures more heavily.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Local Government Risk Assessment: The Effect of Government Type on Credit Rating Decisions in Texas

Greer¹

2016

Public Budgeting & Finance

View full text Add to dashboard Cite

In consideration of increased levels of debt issued by special purpose local governments, this study explores the relationship between local government type and credit rating decisions. Investors use credit ratings as a signal for default risk, and risk level is a function of local economic base including service responsibilities and revenue sources. Governmental functions and economic bases vary across local government types which affect credit rating decisions. Specifically, special purpose governments have more limited responsibilities and revenue sources compared to general purpose governments. To model the decision of agency selection a multivariate probit model is estimated using bond deals from six different types of local governments in Texas. Findings suggest differences among general purpose and special purpose local governments. This supports the hypothesis that economic base affects credit rating decisions. Results indicate that credit rating agencies evaluate and weight information differently, and that local governments chose rating agencies in response.

show abstract

“…This activity develops a reputation and regard among investors that ensures client firms continue to seek the services of the agency. However, in the earliest stages, credit rating agencies have no reputation with which to attract client firms (Allen and Dudney 2008). This situation could result in awarding inappropriately high credit ratings to build a base of client firms and may help explain the extremely disproportional distribution of ratings.…”

Section: Corporate Bondsmentioning

confidence: 99%

Are Credit Ratings Relevant in China’s Corporate Bond Market?

Dhawan

2015

The Chinese Economy

View full text Add to dashboard Cite

While China may imitate the United States in establishing and regulating its nascent credit rating industry, the reputation and influence of the rating agencies may take years to develop. This observation has led to suggestions that investors have largely discounted the opinions of Chinese credit rating agencies. Using post-2005 data, we find that credit spreads and bond ratings in China display a similar relation to that found in the United States. In particular, this relation remains significant after controlling for bond-level and firm-level characteristics. This suggests that investors indeed use credit ratings to determine the risk premiums on Chinese corporate bonds.

show abstract

The Impact of Rating Agency Reputation on Local Government Bond Yields

Abstract: G12, G24, Split ratings, municipal bonds, rating agencies, reputation,

Cited by 22 publications

References 15 publications

Impact of Bankruptcy Eligibility Requirements and Statutory Liens on Borrowing Costs

Impact of Bankruptcy Eligibility Requirements and Statutory Liens on Borrowing Costs

Local Government Risk Assessment: The Effect of Government Type on Credit Rating Decisions in Texas

Are Credit Ratings Relevant in China’s Corporate Bond Market?

Contact Info

Product

Resources

About