Bond Yields, Ratings, and Financial Information: Evidence from Public Utility Issues |
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| Authors: | Sara A Reiter David A Ziebart |
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| Institution: | University of Illinois at Urbana-Champaign, Champaign, IL 61820. Research support for this project was provided by the Investors in Business Education summer research grant program of the Bureau of Business and Economic Research, the Department of Accountancy, University of Illinois at Urbana-Champaign, and the KPMG Peat Marwick Foundation. |
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| Abstract: | This study investigates the relative roles of bond ratings and financial information in the setting of bond yields. Structural equation modeling techniques are used to learn whether ratings determine yields or whether both ratings and yields are determined by a concurrent set of economic and financial factors. Tests of alternative structural model configurations provide evidence regarding the associations between bond ratings, financial information, and bond yields. Both ratings and financial information are found to play an important role in determining bond yields. In addition, yields are consistent with the higher rating in cases of split ratings. |
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