Yixiao (Ethan) Jiang, Ph.D. Graduate Student, Rutgers University

"Did Shareholder Information Play a Role in Bond Ratings?"

This paper studies the role of common shareholders as efficient information intermediaries between the credit rating agencies (CRAs) and the bond issuers. The model allows the ratings to be determined not only by a issuer's spreadsheet variables, but also various soft information that the CRA might receive from its shareholders. The amount of soft information is aggregated by a index which is constructed from the CRA and its shareholders' shareholding data. Using the Mergent's Fixed Income Securities Database(FISD) from 2001-2008, I estimate and examine the pattern of quantile marginal effects (QME) and draw two conclusions: (1) the CRAs appear to be risk-adverse when the amount of soft information is small, but the information effect grows as information accumulates. (2) The impact of shareholder information is generally positive for investment-grade bonds but negative for high-yield bonds, which implies that the shareholder information has value.