Bond Rating Statements and Risk Compensation:Theoretical Analysis and Empirical Evidence
The Chinese bond market exhibits clear rating inflation due to issuance rating thresholds that fail to adequately reflect issuers'default risk and debt repayment capacity.This issue has sparked ongoing debates about the effectiveness of the domestic rating market.To address the lack of meaningful information in third-party credit ratings,this paper examines the impact of the textual characteristics of credit rating reports on bond issuance yields.The study is of significant theoretical and practical importance for understanding the structural features and micro-mechanisms of credit risk disclosure in China's bond rating market.This paper develops a theoretical model that incorporates bond rating statements and proposes the"risk compensation statement"hypothesis.Specifically,it suggests that rating agencies issue longer rating statements to provide additional risk information,compensating for the limitations of the rating grade itself.Investors,by analyzing the content of these rating reports,can identify private signals of default risk and demand higher bond yields.The theoretical model demonstrates that,after controlling for the rating grade,the length of the rating report is positively correlated with bond yields.Empirical tests based on a sample of exchange-listed credit rating reports from 2008 to 2021 consistently support this hypothesis,with robust results.The policy implications of this study suggest that Chinese regulators should recognize these unique market features and enhance regulatory mechanisms for rating agencies,including appeal and exemption procedures.Such improvements would help prevent situations where investors,following defaults,place full responsibility onto issuers and intermediaries,thereby mitigating adverse selection in the market.The paper's contributions are twofold:First,it broadens the research perspective by constructing an analytical framework that examines how analysts use extended rating statements to compensate for the shortcomings of rating grades,offering scientific evidence and policy insights into the effectiveness of China's bond rating market.Second,it highlights the importance of rating reports in identifying risk,particularly in the context of rating inflation,thereby extending textual analysis into both the theoretical and practical dimensions of the domestic bond market.
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万方数据
