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INFORMATION OPACITY AND FITCH BOND RATINGS
Author(s) -
Livingston Miles,
Zhou Lei
Publication year - 2016
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12110
Subject(s) - bond credit rating , credit rating , bond , basis point , opacity , competition (biology) , yield (engineering) , economics , actuarial science , econometrics , business , finance , credit risk , ecology , physics , materials science , metallurgy , optics , credit reference , biology
We examine the marginal impact of Fitch ratings on the at‐issuance yields of industrial and utility bonds rated by Moody's and Standard & Poor's. We find that Fitch ratings reduce the yield premiums on information‐opaque bonds by about 30%, or 15 basis points. The finding is robust even when a Fitch rating exactly equals the two major ratings or their average. The findings suggest that Fitch ratings are not redundant but bring additional information to investors. Increased competition in the rating industry enhances the information efficiency of the bond market, and the existence of smaller rating agencies is economically justified.