Working Paper: CEPR ID: DP14345
Authors: Galina Hale; Julia Bevilaqua; Eric Tallman
Abstract: We empirically evaluate the importance of two sources of public information affectingpricing of global corporate bonds: bond ratings provided by rating agencies andsovereign yields of the issuer’s country. We find that both in the cross-section of firmsand over time more variation in corporate bond yields is explained by sovereign yieldsthan by corporate bond ratings. When sovereign yields are high, their importance inpricing corporate bonds declines. In these states, for advanced economies’ borrowers,the importance of corporate ratings increases. There is a small upward trend in theimportance of corporate ratings over time.
Keywords: bond rating; sovereign
JEL Codes: F34; F36; F65; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sovereign yields (H63) | Corporate bond yields (G12) |
| Corporate ratings (G24) | Corporate bond yields (G12) |
| Sovereign yields (H63) | Corporate ratings (G24) |
| Time (C41) | Importance of corporate ratings (G24) |