Determinants of Bond Rating and its Implications to Corporate Bond Yield

Abstract

Identifying the factors that affect bond ratings is important in relation to investment decisions in long-term debt securities because they have an impact on corporate bonds. The research objective is to analyze the factors that influence bond ratings and their implications for corporate bond yields, both partially and simultaneously. This study uses a logistic regression model to estimate the determinants of corporate bond ratings and a panel data regression model to estimate the implications for corporate bond yields, by taking samples of corporate bonds listed on the Indonesia Stock Exchange (IDX) during the 2012-2016 period with a number of samples research with as many as 36 corporate bonds. Based on the results of the study, using the logistic regression method, the following research findings were obtained: company size, liquidity, leverage and profitability simultaneously affected bond ratings with a contribution of 33.62% (R2 ). In addition, the size and liquidity of the company have a positive and significant effect on bond ratings. While the results of the panel data regression analysis, it was found that company size, liquidity, leverage, profitability and bond rating simultaneously affected bond yields with a contribution of 70.4% (R2) while 29.6% was influenced by other variables. In addition, the size and leverage of the company has a negative and significant effect on the yield of corporate bonds. This study also shows that the larger the size of the company, the less sensitive the changes in bond yields and vice versa, the smaller the size of the company, the more sensitive it is to changes in corporate bond yields.