Date of Degree


Document Type


Degree Name





Armen Hovakimian


Bond Markets; Credit Ratings; Leverage; Product Market Competition; Public Debt


This dissertation consists of three chapters that examine how product market competition affects the cost of public bond debt and how credit rating adjustments influence the cost of debt and leverage of industry rivals.

Chapter 1 explores how competitive threats affect the yield spread of corporate bonds. I find that firms that face high levels of competition also face higher costs of debt. After controlling for common bond-level, firm-level and macroeconomic variables, I find that bondholders of firms that are subject to increased competition demand significantly higher credit spreads than holders of otherwise similar bonds. My analysis also reveals that information about competition is incorporated in bond credit ratings. Combined, these findings provide strong evidence that competitive threats are being reflected in corporate debt prices and that competitive dynamics influence firms' access to capital.

Chapter 2 analyzes the information transfer effect of bond rating adjustments among firms competing in the same industry. Specifically, I investigate the impact of a bond credit rating change with respect to one firm in an industry on the corporate bond yield spreads of rival firms. I find that a credit rating downgrade of an investment-grade firm is followed by a significant increase in the corporate bond yield spreads of competing firms in the same industry. I also find that not all competitors are affected equally by bond credit rating downgrades in their industry. Smaller, more opaque firms operating in competitive markets are found to be more sensitive to rival's credit adjustments.

Chapter 3 examines the intra-industry information transfer effect of bond rating adjustments. I analyze how the effect of the announcement of a bond rating change is transferred from the downgraded or upgraded company to its industry rivals. Specifically, I investigate the effect of the rating change on the leverage ratios of rival firms. I find that rivals of downgraded firms reduce their leverage in the year following the downgrade.