Title

Are Chinese credit ratings relevant? A study of the Chinese bond market and credit rating industry

Document Type

Journal article

Source Publication

Journal of Banking & Finance

Publication Date

2-2018

Volume

87

First Page

216

Last Page

232

Publisher

Elsevier BV

Keywords

Bond yield, Credit rating, Emerging market

Abstract

We investigate the nascent but fast-growing Chinese bond market and credit rating industry. We find Chinese bond ratings are informative and significantly correlated with bond offering yields. In addition, the Chinese bond investors distinguish ratings from different credit rating agencies (CRAs), demanding lower yields on bonds rated by global-partnered CRAs. However, the empirical results suggest that the rating scales used by Chinese CRAs are not comparable to those of international CRAs. Furthermore, Chinese CRAs have very broad rating scales and pool bonds with significantly different default risks into a single rating category, resulting in over 90% of bonds in only three rating categories.

DOI

10.1016/j.jbankfin.2017.09.020

Print ISSN

03784266

E-ISSN

18726372

Funding Information

Poon acknowledges a research grant (LU13501214) from the General Research Fund (GRF), Research Grants Council, Hong Kong and a Business Faculty Research Grant (DB14B2) from Lingnan University, Hong Kong. {LU13501214, DB14B2}

Publisher Statement

Copyright © 2018 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license. (http://creativecommons.org/licenses/by-nc-nd/4.0/)

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

Livingston, M., Poon, W. P. H., & Zhou, L. (2018). Are Chinese credit ratings relevant? A study of the Chinese bond market and credit rating industry. Journal of Banking & Finance, 87, 216-232. doi: 10.1016/j.jbankfin.2017.09.020

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