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Corporate bond ratings, underwriters’ reputation and cost of bonds

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  • Chao Chen
  • Yang Zhao
  • Yu Zhao

Abstract

This paper studies the impact of underwriters’ reputation on corporate bond ratings and issuers’ cost of bonds measured by their yield spread in China. By analyzing all corporate bond issues from the first issue in August 2007 to October 2014, this study finds that after controlling for the endogenous issue and other factors, rating agencies are likely to take the reputation of underwriters into consideration when assigning credit ratings. Furthermore, the reputation of underwriters can decrease bond financing costs through the channel of credit ratings. Specifically, the higher the reputation of underwriters is, the higher the credit ratings and the lower the yield spread of bonds will be. This study provides new evidence for the effect of underwriters’ reputation in the process of bond initial issuing in China.

Suggested Citation

  • Chao Chen & Yang Zhao & Yu Zhao, 2019. "Corporate bond ratings, underwriters’ reputation and cost of bonds," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 26(1-2), pages 1-16, January.
    • Handle: RePEc:taf:raaexx:v:26:y:2019:i:1-2:p:1-16
    DOI: 10.1080/16081625.2019.1522570
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    Cited by:

    1. Cheng, Louis T.W. & Sharma, Piyush & Shen, Jianfu & Ng, Allen C.C., 2021. "Exploring the dark side of third-party certification effect in B2B relationships: A professional financial services perspective," Journal of Business Research, Elsevier, vol. 127(C), pages 123-136.
    2. Jaspreet Kaur & Madhu Vij & Ajay Kumar Chauhan, 2023. "Signals influencing corporate credit ratings—a systematic literature review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 50(1), pages 91-114, March.
    3. Su, Tong & Shi, Yuning & Lin, Boqiang, 2023. "Label or lever? The role of reputable underwriters in Chinese green bond financing," Finance Research Letters, Elsevier, vol. 53(C).

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