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

Ramin P. Baghai, Henri Servaes and Ane Tamayo

Journal of Finance, 2014, vol. 69, issue 5, 1961-2005

Abstract: type="main">

Rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009; holding firm characteristics constant, average ratings have dropped by three notches. This change does not appear to be fully warranted because defaults have declined over this period. Firms affected more by conservatism issue less debt, have lower leverage, hold more cash, are less likely to obtain a debt rating, and experience lower growth. Their debt spreads are lower than those of unaffected firms with the same rating, 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 the increase in conservatism to be fully warranted.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (112)

Downloads: (external link)
http://hdl.handle.net/10.1111/jofi.12153 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:69:y:2014:i:5:p:1961-2005

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().