Researcher ORCID Identifier

Graduation Year


Date of Submission


Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

George Batta

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OCLC Record Number



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.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.