The Influence Of Credit Rating And Double Reputation On Bond Financing Cost

Credit rating agencies are important intermediaries in the capital market.The credit rating issued by them is a pass for companies to issue bonds,a quantification of credit risk,and an important basic institutional arrangement for the bond market to reduce information asymmetry in credit risk.However,with the development of the bond market,credit risk has also increased sharply,and bond defaults have occurred frequently.Especially since the third quarter of 2020,there have been successive defaults of AAA-rated issuers in China’s bond market.The occurrence of these high-rated issuer defaults has undoubtedly greatly hit the confidence of market investors,but also has serious doubts about the rating quality of rating agencies.How to improve the quality of China ’s credit rating has become an urgent problem to be solved.In addition,reputation is the core capital of credit rating agencies.It is of great significance to study the reputation and reputation mechanism of rating agencies to alleviate information asymmetry in the bond market,reduce bond financing costs and improve market efficiency.This paper first analyzes the existing research from a theoretical perspective,and finds that the traditional research is to comprehensively measure the reputation of rating agencies and construct a single reputation variable for research.From the reality,this paper argues that the above analysis ignores the fact that in the credit rating industry,due to the mainstream issuer-paid model,there is a strange tripartite relationship among bond issuers,investors and rating agencies : bond issuers hire rating agencies to rate them and pay fees,rating agencies assess the risk profile of bonds and publish relevant ratings,while investors using the final rating results do not need to pay for the rating.Rating agencies face the problem that the evaluation object coincides with the source of income.So rating agencies have the incentive to develop another good reputation on the issuer’s side as well as the incentive to develop a good reputation on the investor’s side.Therefore,focusing on the concept of "reputation for whom",decomposing the reputation of rating agencies into investor reputation and issuer reputation according to different stakeholders,and proposing the dual reputation of credit rating agencies is the starting point and innovation of this paper.Then this paper conducts an empirical analysis from the new perspective of the dual reputation of rating agencies,and selects corporate bonds,corporate bonds and medium-term notes issued from 2015 to 2021 as research samples.Considering that there is a time lag in the role of reputation,it is divided into a reputation establishment period and a reputation test period.In the reputation establishment period,a dual reputation variable of the rating agency is constructed,that is,the investor ’s reputation and the issuer’s reputation of the rating agency.The investor’s reputation,that is,the rating quality,uses the goodness of fit between the bond rating and the spread as a proxy variable.The issuer’s reputation uses the market share of the rating agencies as the proxy variable.In the reputation test period,the bond rating variable and the firm rating variable and the constructed dual reputation variable are used to study the bond financing cost.In addition,this paper further classifies rating agencies,and tests the effectiveness of the reputation mechanism of rating agencies from the perspective of the growth of market share of post-rating agencies and the change of issuer quality.The results show that:(1)Credit rating can reduce information asymmetry,thereby reducing bond financing costs.(2)The reputation of different stakeholders of the rating agencies has different effects on bond financing costs.The investor’s reputation of the rating agencies can send a positive signal to investors and significantly reduce bond financing costs,while the issuer’s reputation of the rating agencies does not have the same effect or even increase bond financing costs.(3)The poorer the issuer’s quality is,the more likely it is to find a rating agency with a high issuer’s reputation and a low investor’s reputation,and the higher the bond financing cost rated by such rating agency is,the weaker the effect of the credit rating issued by such rating agency on lowering bond financing cost is.(4)The reputation index of rating agencies measured by the reputation of issuers and investors is effective.High investor’s reputation is conducive to rating agencies to obtain higher market share in the future.The quality of bond issuers rated by rating agencies with high investor’s reputation is higher during the reputation test period,and the quality of rating agencies with low investor’s reputation,especially rating agencies with high issuer’s reputation,is lower.Finally,based on the new perspective of the dual reputation of rating agencies,this paper puts forward feasible policy recommendations for credit rating agencies,bond issuers and regulatory authorities according to the research results.