Information Opacity and Fitch Bond Ratings

29 Pages Posted: 7 Feb 2017 Last revised: 11 Feb 2017

See all articles by Miles Livingston

Miles Livingston

University of Florida - Department of Finance, Insurance and Real Estate

Lei Zhou

Northern Illinois University - Department of Finance

Date Written: February 6, 2017

Abstract

We examine the marginal impact of Fitch ratings on the at-issuance yields of industrial and utility bonds rated by Moody’s and S&P. We find that Fitch ratings reduce the yield premiums on information opaque bonds by about 30% or 15 basis points. The finding is robust even when a Fitch rating exactly equals the two major ratings or their average. The findings suggest that Fitch ratings are not redundant but bring additional information to investors. Increased competition in the rating industry enhances the information efficiency of the bond market and the existence of smaller rating agencies is economically justified.

Keywords: Bonds, Fitch Bond Ratings, Three Ratings

JEL Classification: G12, G24

Suggested Citation

Livingston, Miles B. and Zhou, Lei, Information Opacity and Fitch Bond Ratings (February 6, 2017). Journal of Financial Research, Vol. 39, No. 4, 2016, Available at SSRN: https://ssrn.com/abstract=2912292

Miles B. Livingston (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainsville, FL 32611-7168
United States
352-392-4316 (Phone)
352-392-0301 (Fax)

Lei Zhou

Northern Illinois University - Department of Finance ( email )

Wirtz Hall
DeKalb, IL 60115
United States
815-753-1115 (Phone)
815-753-0504 (Fax)

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