Key Aspects of the Bond Ratings in Indonesia

Abstract

Very few research projects based on bonds are conducted in Indonesia, compared to those based on stocks. In fact, investors who do not like taking risks tend to prefer investing in bonds. Several previous studies have reached differing conclusions about the effects of the variables observed, so the factors that affect bond ratings need to be examined once more. This study aims to determine the effects that firm size, liquidity, profitability, leverage, productivity, security and the age and reputation of the auditor, have on bond rating. 35 corporate bonds listed on the Indonesian Stock Exchange in 2012 were chosen as the sample, and analyses were performed using logistic regression analysis. As a result, this study found that the only variable significantly influencing bond ratings is their profitability. Investors, in order to avoid the risk of a company’s default, can thus measure profitability and take that into consideration.