Researcher ORCID Identifier
https://orcid.org/0000-0003-1350-1835
Graduation Year
2021
Date of Submission
11-2020
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
George Batta
Terms of Use & License Information
OCLC Record Number
1241261366
Abstract
This study focuses on the market’s perception of default risk following changes to firm rating methodologies, measured by bond credit spreads. Using data from 2004 through 2007, a 2006 change to Moody’s pension and operating lease adjustment methodologies is found to have a statistically significant impact on bond yield spreads and thus the market’s assessment of the probability of default. Although the debt-to-asset, debt-to-EBITDA, and interest coverage ratios are shown to have little economic importance, firm size and equity return volatility are proven to be highly significant. This finding indicates that ratings agencies seek to update adjustment methodologies to more accurately reflect firm debt profiles without causing significant impacts on market perceptions of default.
Recommended Citation
Barker, Alexander, "The Impact of Credit Rating Adjustment Methodologies on Market Perceptions of Default Risk" (2021). CMC Senior Theses. 2540.
https://scholarship.claremont.edu/cmc_theses/2540
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.
