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

Henri Servaes, Ramin Baghai and Ane Tamayo

No 8446, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We document that rating agencies have become more conservative in assigning ratings to corporate bonds over the period 1985 to 2009. Holding firm characteristics constant, average ratings have dropped by 3 notches (e.g., from A+ to BBB+) over time. This increased stringency has affected both capital structure and debt spreads. Firms that suffer most from this conservatism issue less debt and have lower leverage. However, their debt spreads are lower compared to the spreads of firms that have not suffered from this conservatism, 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 that the increase in conservatism is fully warranted.

Keywords: Capital structure; Credit ratings; Debt issues; Debt spreads (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2011-06
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Citations: View citations in EconPapers (4)

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Journal Article: Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing (2014)
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