TY  - JOUR
AU  - Kisgen,Darren J.
AU  - Strahan,Philip E.
TI  - Do Regulations Based on Credit Ratings Affect a Firm's Cost of Capital?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14890
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14890
L1  - http://www.nber.org/papers/w14890.pdf
N1  - Author contact info:
Darren J.. Kisgen
Boston College
Fulton Hall, Finance Department
140 Commonwealth Av.
Chestnut Hill, MA 02467
E-Mail: Kisgen@bc.edu

Philip Strahan
Carroll School of Management
324B Fulton Hall
Boston College
Chestnut Hill, MA  02467
Tel: 617/552-6430
E-Mail: philip.strahan@bc.edu
AB  - In February 2003, the SEC officially certified a fourth credit rating agency, Dominion Bond Rating Service ("DBRS"), for use in bond investment regulations.  After DBRS certification, bond yields change in the direction implied by the firm's DBRS rating relative to its ratings from other certified rating agencies.  A one notch better DBRS rating corresponds to a 39 basis point reduction in a firm's debt cost of capital.  The impact on yields is driven by cases where the DBRS rating is better than other ratings and is larger among bonds rated near the investment-grade cutoff.  These findings indicate that ratings-based regulations on bond investment affect a firm's cost of debt capital.
ER  -