Effects of Credit Ratings on Corporate Bonds' Performance: Evidence from China.

摘要

The steady growth of China's economy depends on the good operation of the financial system, in which the credit rating industry should play an important role. To get a more comprehensive understanding about the rating agencies' impact in the bond market, I discuss the recent development of China's credit rating industry and use recent data to investigate the effects of credit ratings offered by China's rating agencies on the price performance of corporate bonds.;I first examine the informational content of credit ratings offered by China's rating agencies and provide evidence by investigating whether the firm's financial ratios and relevant publicly available information can explain well the rating announcements. I use both logistic regression model and Altman's Z-score model with recent data of China's enterprises and rating agencies. The findings suggest that ratings are not inconsistent with the relevant financial information and can reflect the risks of the bond issuers. Therefore, I argue that the China's rating agencies have been performing well as the "information intermediary", and thus they help reduce information asymmetry in the bond market.;I then study how the rating announcements would affect the bond issuance spreads in the primary bond market in China. I use descriptive statistics and one-step and two-step estimation method. The findings suggest that higher-rated bonds are associated with lower issuance yield spreads. Also, the two-step estimation model shows that the credit ratings by themselves have an independent impact on the bond issuance yield spreads. The ratings could bring some incremental information about bond valuation beyond already observable characteristics to the bond market.;I also further examine the effects of the initial rating announcements on the spread adjustments of bonds after they are listed in the secondary market. The findings suggest that there are significant differences of spread adjustments among each rating class and that the initial ratings still have a significant effect on the initial-day spread adjustments as well.