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The Effects of Corporate Governance Attributes on Credit Ratings and Bond Yields

35 Pages Posted: 14 Jan 2009 Last revised: 15 May 2010

Michael Bradley

Duke University - Fuqua School of Business

George S. Dallas

F&C Investments; European Corporate Governance Institute (ECGI)

Elizabeth Snyderwine

University of Notre Dame; Loyola University of Chicago

Dong Chen

University of Baltimore

Date Written: September 25, 2008


This study examines the empirical relations between the governance structure of public corporations in the United States and the credit ratings and pricing of their debt securities. We study an unbalanced panel of 775 unique firms from 2001 through 2007. Consistent with the existing literature, we find that the primary determinant of a firm's credit rating is its financial condition. However, governance attributes relating to transparency, ownership structure, shareholder rights, board structure and executive compensation are significantly related to credit ratings as well, even after accounting for the financial condition of the firm. We also find that the presence of anti-takeover measures is associated with higher credit scores for firms with investment grade debt and lower for firms with speculative grade debt. Finally, our empirical results suggest that stable boards, defined as boards having attributes relating to tenure, liability indemnification and classified board structures, have higher credit ratings and lower bond spreads. We conjecture that boards with greater stability may be better positioned to take into consideration the longer term interests of the firm as a whole, thereby benefiting the firm's bondholders.

Keywords: corporate governance, credit risk, credit rating, bond spreads

JEL Classification: G30

Suggested Citation

Bradley, Michael and Dallas, George S. and Snyderwine, Elizabeth and Chen, Dong, The Effects of Corporate Governance Attributes on Credit Ratings and Bond Yields (September 25, 2008). Available at SSRN: or

Michael Bradley

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-8006 (Phone)
919-660-7971 (Fax)

George S. Dallas

F&C Investments ( email )

Exchange House
Primrose Street
London, EC2A 2NY
United Kingdom
+44 (0) 20 7011 4246 (Phone)

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Elizabeth Snyderwine

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN New South Wales 46556-5646
United States

Loyola University of Chicago ( email )

25 East Pearson Street
Chicago, IL 60611
United States

Dong Chen (Contact Author)

University of Baltimore ( email )

1420 N. Charles Street
Baltimore, MD 21201
United States

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