The role of financial factors and non-financial factors on corporate bond and sukuk rating Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nisful Laila ◽  
Sylva Alif Rusmita ◽  
Eko Fajar Cahyono ◽  
W.N.W. Azman-Saini
Keyword(s):  
Corporate Bonds ◽  
Corporate Bond ◽  
Ordinal Scale ◽  
Bond Ratings ◽  
Content Type ◽  
Leverage Ratio ◽  
Financial Factors ◽  
Maturity Date ◽  
Bond Issuers ◽  
Security Structure

Purpose This study aims to analyze the determinants of ratings of corporate bonds and sukuk issued by firms listed on the Indonesia Stock Exchange (IDX) for the 2013–2019 period. Design/methodology/approach This study uses a quantitative approach by testing hypotheses and using logistic regression. Ordinal logistic endogenous (or dependent) variables (Y) in ordinal logistics use data in the form of levels (ordinal scale). Independent (or exogenous) variables (X), include financial and non-financial factors for dependent (or endogenous) variables (Y), namely, of corporate bonds and sukuk ratings. There are two approaches to the study they are Logit and Gompit (Negative Log-Log. The population of the study is Indonesian companies listed on the IDX that issued bonds and sukuk for the 2013–2019 periods. The sampling technique is purposive. In total, 16 corporate companies adhering to the above criteria and issuing bonds and sukuk were chosen. In total, 270 types of bonds and 280 types of sukuk were selected as samples. Findings The results of the Logit and Gompit regression show that leverage ratio, firm size, security structure and maturity date are important determinants of corporate bond ratings while profitability and liquidity ratios appear to have no influence on the rating. In the case of sukuk, profitability, liquidity and maturity date play important roles in influencing the corporate sukuk rating. However, there is no evidence to suggest that leverage ratio, company size and security structure may affect sukuk ratings. Research limitations/implications For both sukuk and bond issuers, it is necessary to pay attention to the factors that may affect the ratings. Specifically, Sukuk issuers need to pay attention to the return of asset, current ratio, growth and structure. On the other hand, bond issuers need to consider depth to equity, structure and maturity. As for investors, the findings of this study reveal that both bond and sukuk ratings reflect their performance. Practical implications This study provides useful information for investors that allows them to assess the risk of sukuk or bonds chosen based on rating and financial performance. Originality/value The novelty of this study lies in its econometric methodology used to identify factors which influence sukuk and bond ratings. Specifically, this study used two different techniques that allow a robust conclusion to be drawn. Furthermore, this study provides a systematic analysis which allows comparison between factors which affect bond and sukuk ratings in Indonesia.

scholarly journals DETERMINANTS OF CORPORATE BOND AND SUKUK RATINGS IN INDONESIA

2020 ◽  
Vol 6 (3) ◽  
Author(s):  
Afifatun Ni’mah ◽  
Nisful Laila ◽  
Sylva Alif Rusmita ◽  
Eko Fajar Cahyono
Keyword(s):  
Stock Exchange ◽  
Wald Test ◽  
Corporate Bond ◽  
Company Size ◽  
Bond Ratings ◽  
Leverage Ratio ◽  
Logistic Regression Models ◽  
Additional Information ◽  
Maturity Date ◽  
Security Structure

This study aims to determine the factors, both financial and non-financial, which influence corporate bond and Sukuk ratings. The results will be useful for companies, investors or related parties as additional information and references for their investment decisions. Using ordinal logistic regression models with SPSS version 21 software, the study analyses the determinants of corporate bond and sukuk ratings listed on the Indonesia Stock Exchange (IDX) for the period 2013-2017. The variables employed are profitability, liquidity, leverage, company size, securities structure and maturity date. The results of the Wald test statistics show that leverage ratio, firm size, security structure, and maturity date are the factors that influence the probability of high or low corporate bond ratings, while profitability and liquidity ratios are factors that have no effect on the level of such ratings. With regard to sukuk, profitability, liquidity, and maturity date are the factors that influence the probability of high or low corporate sukuk ratings, while leverage ratio, company size, and security structure have no effect on the ratings.

scholarly journals Corporate bonds as a way of financing companies in the Republic of Serbia

Ekonomika ◽  
2021 ◽  
Vol 67 (4) ◽  
pp. 91-102
Author(s):  
Ljiljana Rajnović ◽  
Jonel Subić
Keyword(s):  
Stock Exchange ◽  
Corporate Bonds ◽  
Good Alternative ◽  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
Sustainable Operation ◽  
Bond Issuers ◽  
The Republic

The security of sources of financing is of undoubted importance for the continuous and sustainable operation of economic entities, which is a long-term interest of persons interested in the operation of economic entities. In the structure of possible sources of financing of economic entities, corporate bonds are of great importance everywhere in the world, and their application in the Republic of Serbia could bring a great contribution to the domestic economy. Corporate bonds are debt obligations issued by corporation to debt refinancing, improvements, expansions or acquisitions. The bondholders are the issuer's creditors and for the money invested in the company, they expect earnings. The main goal of this paper is to consider the conditions and importance of issuing corporate bonds by medium and large companies in Serbia and the advantage over other sources of financing. Based on the obtained research results, it can be concluded that the issuance of bonds is a good alternative to other sources of financing the company's operations, but the corporate bond market in Serbia is in the development phase. Bond issuers with listing on the regulated market of the Belgrade Stock Exchange include, in addition to the state, only certain commercial banks and international financial organizations.

Do corporate bond recovery rates monitored by corporate governance mechanisms?

2016 ◽  
Vol 42 (8) ◽  
pp. 830-848
Author(s):  
Mehdi Mili ◽  
Sami Abid
Keyword(s):  
Corporate Governance ◽  
Generalized Method Of Moments ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Firm Level ◽  
Recovery Rates ◽  
Content Type ◽  
Country Level ◽  
The Impact ◽  
The Relationship

Purpose – The purpose of this paper is to examine the relationship between corporate governance (CG) and firms’ bond recovery rates (RRs). The authors hypothesize that governance features impact RRs by controlling agency costs that result from conflicts between bondholders and shareholders. The authors also test the relationship between CG and RRs during the last crisis. Design/methodology/approach – The authors use a generalized method of moments regression model to test the relationship between CG and firms’ bond RRs. The authors employ a direct measure of recoveries rates from Moody’s ultimate recovery database covering the period from 2003 to 2012. Both firm-level CG and country-level variables are used to examine the determinants of corporate bonds RRs. Findings – The results support a significant impact of CG mechanisms on bond RRs mainly during crisis period. The authors find that firms operating with CEO-Duality decrease their bond RRs during financial crisis. This implies wealth transfers from bondholders to shareholders and provides one explanation why some firms operate with weak governance. Originality/value – This paper provides the first direct evidence that corporate bond RRs are directly related to CG mechanisms. The authors combine firm-level CG and country-level variables to examine the determinants of corporate bonds RRs. Earlier studies focussed on financial firm-level data and macro-economic variables. The authors also test the impact of board composition and ownership structure on bond recoveries.

scholarly journals Corporate Yields: Effect of Credit Ratings and Sovereign Yields

2020 ◽  
Vol 110 ◽  
pp. 499-503
Author(s):  
Julia Bevilaqua ◽  
Galina Hale ◽  
Eric Tallman
Keyword(s):  
Credit Ratings ◽  
Corporate Bonds ◽  
Public Information ◽  
Corporate Bond ◽  
Bond Yields ◽  
Upward Trend ◽  
Bond Ratings ◽  
Rating Agencies ◽  
Advanced Economies ◽  
Over Time

We empirically evaluate the importance of two sources of public information affecting pricing of global corporate bonds: bond ratings provided by rating agencies and sovereign yields of the issuer's country. We find that both in the cross section of firms and over time more variation in corporate bond yields is explained by sovereign yields than by corporate bond ratings. When sovereign yields are high, their importance in pricing corporate bonds declines. In these states, for advanced economies' borrowers, the importance of corporate ratings increases. There is a small upward trend in the importance of corporate ratings over time.

scholarly journals Can the dual-rating regulation improve the rating quality of Chinese corporate bonds?

PLoS ONE ◽  
2021 ◽  
Vol 16 (12) ◽  
pp. e0259759
Author(s):  
Xiangyun Zhou
Keyword(s):  
Corporate Bonds ◽  
Corporate Bond ◽  
Logit Models ◽  
Bond Ratings ◽  
Rating Agencies ◽  
Different Types ◽  
Empirical Tests ◽  
Regulatory Effects ◽  
Reputation Effect

We developed a dual-reputational rating shopping model to introduce public and institutional reputations. Investor’s and regulator’s penalty rates are described as public and institutional reputations, respectively. We achieved the available conditions of single-rating and dual-rating regulations to prevent rating inflation in this model. To examine the regulatory effects of different types of regulations on Chinese corporate bond ratings, we utilize panel ordered logit models. Theoretical analysis and empirical tests show that, when the reputation effect is low, the single-rating regulation is better at improving rating quality, and when the reputation effect is high, the dual-rating regulation induces rating agencies to provide more accurate ratings. Compared to the regulatory effects of the single-rating and the multi-rating regulations, the dual-rating regulation most effectively improves the rating quality of corporate bonds and prevents rating inflation.

scholarly journals Corporate Bond Market in Poland—Prospects for Development

2020 ◽  
Vol 13 (12) ◽  
pp. 306
Author(s):  
Jakub Kubiczek
Keyword(s):  
Corporate Bonds ◽  
Bond Market ◽  
Corporate Bond ◽  
Annual Growth ◽  
Market Development ◽  
Supply Side ◽  
Upward Trend ◽  
Corporate Bond Market ◽  
Bond Issuers

The Polish corporate bond market does not have a history as long as the American one, however, it is characterized by stable annual growth. The growth of the market is related to the growth of its liquidity and is determined by a number of entities, both on the demand and the supply side. The aim of the study was to present the structure of the Catalyst market and bond trading in Poland. The study also discusses the market’s development and identifies the factors that determine this development. Based on reports concerning trading on the Catalyst market, a huge growth was noticed in the 10 years since the market’s establishment. Forecasts indicate that the growth will continue. The outbreak of the SARS-CoV-2 pandemic will cause the market development to be slower than the model’s forecast, although the data for the first nine months of 2020 suggest that the upward trend will be maintained. Moreover, for the market to continue to thrive, a rating must be compulsory for corporate bond issuers. A comparison of the ratings of individual issuers enables investors to analyze the risk and profitability of corporate bonds in an easier way.

scholarly journals Determinants of Bond Rating and its Implications to Corporate Bond Yield

2019 ◽  
Vol 9 (2) ◽  
pp. 195-200
Keyword(s):  
Logistic Regression ◽  
Panel Data ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Company Size ◽  
Bond Yields ◽  
Bond Ratings ◽  
Bond Rating ◽  
Panel Data Regression ◽  
Data Regression

Identifying the factors that affect bond ratings is important in relation to investment decisions in long-term debt securities because they have an impact on corporate bonds. The research objective is to analyze the factors that influence bond ratings and their implications for corporate bond yields, both partially and simultaneously. This study uses a logistic regression model to estimate the determinants of corporate bond ratings and a panel data regression model to estimate the implications for corporate bond yields, by taking samples of corporate bonds listed on the Indonesia Stock Exchange (IDX) during the 2012-2016 period with a number of samples research with as many as 36 corporate bonds. Based on the results of the study, using the logistic regression method, the following research findings were obtained: company size, liquidity, leverage and profitability simultaneously affected bond ratings with a contribution of 33.62% (R2 ). In addition, the size and liquidity of the company have a positive and significant effect on bond ratings. While the results of the panel data regression analysis, it was found that company size, liquidity, leverage, profitability and bond rating simultaneously affected bond yields with a contribution of 70.4% (R2) while 29.6% was influenced by other variables. In addition, the size and leverage of the company has a negative and significant effect on the yield of corporate bonds. This study also shows that the larger the size of the company, the less sensitive the changes in bond yields and vice versa, the smaller the size of the company, the more sensitive it is to changes in corporate bond yields.

Estimating liquidity premium of corporate bonds using the spread information in on- and off-the-run Treasury securities

2017 ◽  
Vol 7 (2) ◽  
pp. 134-162 ◽  
Author(s):  
Haitao Li ◽  
Chunchi Wu ◽  
Jian Shi
Keyword(s):  
Credit Risk ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Liquidity Premium ◽  
Yield Spreads ◽  
Content Type ◽  
Novel Approach ◽  
Liquidity Measures ◽  
Investment Grade ◽  
Bond Spreads

Purpose The purpose of this paper is to estimate the effects of liquidity on corporate bond spreads. Design/methodology/approach Using a systematic liquidity factor extracted from the yield spreads between on- and off-the-run Treasury issues as a state variable, the authors jointly estimate the default and liquidity spreads from corporate bond prices. Findings The authors find that the liquidity factor is strongly related to conventional liquidity measures such as bid-ask spread, volume, order imbalance, and depth. Empirical evidence shows that the liquidity component of corporate bond yield spreads is sizable and increases with maturity and credit risk. On average the liquidity spread accounts for about 25 percent of the spread for investment-grade bonds and one-third of the spread for speculative-grade bonds. Research limitations/implications The results show that a significant part of corporate bond spreads are due to liquidity, which implies that it is not necessary for credit risk to explain the entire corporate bond spread. Practical implications The results show that returns from investments in corporate bonds represent compensations for bearing both credit and liquidity risks. Originality/value It is a novel approach to extract a liquidity factor from on- and off-the-run Treasury issues and use it to disentangle liquidity and credit spreads for corporate bonds.

Proximity to broad bond rating change and CEO power

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Akhilesh Bajaj ◽  
Li Sun
Keyword(s):  
Corporate Governance ◽  
Personal Characteristics ◽  
Chief Executive ◽  
Negative Consequences ◽  
Ceo Power ◽  
Bond Ratings ◽  
Rating Data ◽  
Bond Rating ◽  
Content Type ◽  
Rating Change

PurposeBorderline firms whose bond rating has a plus or minus specification by a rating agency face a greater potential for an upgrade or downgrade by the agency. The authors examine the level of chief executive officer (CEO) power in firms with a plus or minus bond rating. The authors test whether CEOs of these firms become more or less powerful, along with the effect of corporate governance and existing bond rating.Design/methodology/approachThe authors use a panel sample with 16,429 observations from 1992 to 2016 from the ExecuComp database.FindingsThe authors find that CEOs of borderline-rated firms tend to be less powerful, relative to firms with a non-proximate rating. This result is largely present in firms with a plus rating. The authors also find that our primary findings are mainly driven by firms with low bond ratings (i.e. below investment grade) or by firms with weak corporate governance. Lastly, the authors document that CEO personal characteristics (i.e. CEO age, gender and tenure) impact our findings.Research limitations/implicationsFirst, firms in our sample are large public companies, and the external validity of our results to smaller firms that may also be private is unknown. Second, the Compustat database discontinued reporting bond rating data (i.e. S&P bond ratings) in 2017. Hence, the authors are unable to analyze the CEO power of borderline firms in years after 2016.Practical implicationsThe study contributes to the larger debate on whether having powerful CEOs is beneficial to an organization or not, because prior research has examined the consequences of CEO power with mixed results. The authors document evidence to support the research stream that links CEO power to negative consequences.Social implicationsThe authors find that our primary results are enhanced in firms with weak corporate governance, which is consistent with prior research that finds effective governance may mitigate CEO power and agency problems between the CEO and the Board.Originality/valuePrior research primarily uses CEO power as a driver for performance. Our study focuses on CEO power as a dependent variable, with the bond rating change proximity as a driver of CEO power. The authors believe that this helps develop a more comprehensive understanding of CEO power.

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