An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Arthur Allen
University of Nebraska - Lincoln

George Sanders
Western Washington University

Donna Dudney
University of Nebraska-Lincoln

Abstract: We investigate whether issuers that choose to forgo a bond rating suffer an interest cost penalty greater than the cost of the rating. We use estimated ratings provided by Moody’s Investor Service to proxy for what the rating would have been if it had been purchased. We find that the issuers that forgo a rating do not suffer an interest cost penalty. We also provide evidence that the primary factors associated with an issuer’s decision to purchase a rating are the rating expected by the issuer and the extent to which an issue is marketed locally.

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