Moody’s and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields

Journal of Money, Credit and Banking, Vol. 42, No. 7 (October 2010) DOI/10.1111/j.1538-4616.2010.00341.x

27 Pages Posted: 18 Jul 2019

See all articles by Miles Livingston

Miles Livingston

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

Jie (Diana) Wei

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Lei Zhou

Northern Illinois University - Department of Finance

Date Written: March 9, 2010

Abstract

We examine the relative impact of Moody’s and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody’s ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate between the two ratings and assign more weight to the ratings from Moody’s, the more conservative rating agency. Moody’s becomes more conservative after 1998 and the impact of a superior Moody’s rating becomes stronger. Furthermore, the differential impact of the two ratings is more pronounced for the more opaque Rule 144A issues.

Keywords: bond ratings, bond yields, reputation capital

JEL Classification: G12, G14, G21, G24, G28

Suggested Citation

Livingston, Miles B. and Wei, Jie (Diana) and Zhou, Lei, Moody’s and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields (March 9, 2010). Journal of Money, Credit and Banking, Vol. 42, No. 7 (October 2010) DOI/10.1111/j.1538-4616.2010.00341.x , Available at SSRN: https://ssrn.com/abstract=3392073

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)

Jie (Diana) Wei

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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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