The Impact of Rating Agency Reputation on Local Government Bond Yields |
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| Authors: | Arthur C Allen Donna M Dudney |
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| Institution: | (1) College of Business, School of Accountancy, University of Nebraska-Lincoln, Lincoln, NE 68588-0488, USA;(2) College of Business, Department of Finance, University of Nebraska-Lincoln, P.O. Box 880490, Lincoln, NE 68588-0490, USA |
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| Abstract: | This study examines a sample of 12,562 dual-rated local government bond issues including 6,104 split-rated issues to determine
which rating agency has the greatest impact on yields. Using a database of municipal bond issues from 1986 to 2002, we show
that Moody’s rated significantly more issues than S&P, and that Moody’s ratings were more conservative. However, from 1993
to 1997, there was a reduction in ratings disagreements and in Moody’s market share. Beginning in 1995, Moody’s received negative
publicity related to a Department of Justice anti-trust investigation. Moody’s appears to have responded by sharply increasing
their relative conservatism in 1997. From 1986 to 1994, Moody’s ratings had a greater impact on bond yields than S&P ratings,
but their dominant influence on yields disappears in the recent sample period from 1995 to 2002.
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| Keywords: | Split ratings municipal bonds rating agencies reputation |
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