The purposes of this study are to investigate whether there are a relationship between corporate governance practices and credit risk and bond yields. This study takes sample from the companies that published bonds in 2006.
First we investigate the relationship between corporate governance practices and credit risk. Credit risk (default risk) can be measured by bond ratings (Billings, 1999). Using ordered probit regressions, we find evidence that the quality of transparency and financial information disclosure that proxied by big-4 auditors and audit committee have significant influence on bond ratings, but the relationship between blockholders and institutional ownership is not significant on bond ratings.
Second, we investigate the relationship between corporate governance practice and bond yields. Using multiple regressions, we find that corporate governance practices is not significant on bondyields. Then we put bond ratings in the equation, we find that bond ratings give incremental effect to the evidence. This evidence is consistent to Bradley et.al, 2007, that bond ratings are the prominent determinant for bond yields. Together with the bond ratings, the corporate governance practices (blockholders, institutional ownership, big-4 auditors) have significant influence on bond yields.
Keywords: bond ratings, bond yields, corporate governance, credit risk, default risk
This study aims to examine whether there is any relationship between CG practice in credit risk and yield of debt securities. Although research on corporate governance in Indonesia has been done, researchers motivated to conduct this research because it is still little that links the impact of corporate governance on the quality of credit (debt) and his perceptions of credit risk. Credit risk (default risk) can be measured by bond rating and debt to equity ratio (DER) (Billings, 1999). Credit risk in this study were measured by bond ratings issued by independent rating agencies (Outlook).
Many factors affect a company's debt ratings. The main determinants of debt ratings is the company's financial condition, however the practice of corporate governance can also help explain differences in inter-company debt ratings are not captured in the financial condition of each company (Bradley et al, 2007)
Jurnal Simposium Nasional Akuntasi XI (SNA 11)