SHEN Hongbo, LIAO Guanmin:Can Credit Rating Agencies Provide Incremental Information?——Empirical Tests Based on Short-term Financing Bonds

Abstract  Short-term financing bond is the most significant means of bond financing for Chinese enterprises. Under this circumstance, how to solve the information asymmetry when pricing is definitely worth exploring. This paper mainly makes research on whether Chinese credit rating agencies can offer incremental information in the process of pricing short-term financing bond. Based on the sample of the short-term financing bonds issued from 2007 to 2012 and according to the method provided by Agarwal and Hauswald(2012), we measure the proprietary information of credit rating agencies. The study finds that interest rates of short-term financing bonds turn lower when credit rating agencies provide positive information regarding to the proprietary information about issuing enterprise credit risk. Furthermore, the correlation between the positive information and the interest rate of short-term financing bond becomes much more notable when the scale of the enterprise is small. The conclusion shows that credit rating agencies can provide incremental information, which becomes more useful when the extent of investor-enterprise asymmetry is high.

Key words： Credit Rating      Proprietary Information      Issue Rate      Short-term Financing Bonds

Source: Finance & Trade Economics , No.8, 2014