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Do Regulations Based on Credit Ratings Affect a Firm's Cost of Capital? / Darren J. Kisgen, Philip E. Strahan.
- Format:
- Book
- Author/Creator:
- Kisgen, Darren J.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w14890.
- NBER working paper series no. w14890
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2009.
- Summary:
- In February 2003, the SEC officially certified a fourth credit rating agency, Dominion Bond Rating Service ("DBRS"), for use in bond investment regulations. After DBRS certification, bond yields change in the direction implied by the firm's DBRS rating relative to its ratings from other certified rating agencies. A one notch better DBRS rating corresponds to a 39 basis point reduction in a firm's debt cost of capital. The impact on yields is driven by cases where the DBRS rating is better than other ratings and is larger among bonds rated near the investment-grade cutoff. These findings indicate that ratings-based regulations on bond investment affect a firm's cost of debt capital.
- Notes:
- Print version record
- April 2009.
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