The Moderating Role of Leverage on Corporate Bonds Yield
Abstract
This study aims to identify the effect of bond credit rating, firm size, profitability, and liquidity on the yield to maturity (YTM) of listed Indonesian corporate bonds, with leverage ratio as a moderating variable. A panel data multi-linear regression with the fixed effect estimator was used to investigate the YTM of 25 listed corporate bonds from 2019 to 2021. The sample data comprise complete financial reports published in the Indonesia Stock Exchange (IDX) market and operations in the non-financial sector to increase the accuracy of information obtained. The results show that profitability proxied to return-on-asset (ROA) and firm size positively affect the YTM, while the liquidity ratio proxied to the current ratio (CR) had a negative influence. As a moderating variable, leverage proxied to the debt-to-equity ratio (DER) positively moderates the effect of CR, DER negatively moderates the effect of ROA and DER cannot moderate the bond’s credit rating to influence the YTM. However, the bond’s credit rating does not affect the YTM. The analysis of corporate bonds is a relatively uncommon study in Indonesia, and significant implicating for policymakers, underscoring the importance of meticulous management of CR and DER, which can decrease the YTM.
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References
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Subramanyam, K. R. (2014). Financial Statement Analysis. In University of Southern (11th Editi).
Toyoda, T. (1974). Use of the Chow Test under Heteroscedasticity. Econometrica, 42(3), 601–608. https://doi.org/https://doi.org/10.2307/1911796
Xie, Y., Tian, Y., Xiao, Z., & Zhou, X. (2018). Dependence of Credit Spread and Macro-conditions Based on an Alterable Structure Model. PLOS ONE, 13(5), 1–15. https://doi.org/10.1371/journal.pone.0196792
Zhang, X., & Wang, Y. (2022). Impact of Credit Rating on the Bond Market Based on TIC Model. Mathematical Problems in Engineering, 2022(0), 1–7. https://doi.org/10.1155/2022/1488606
Alarussi, A. S., & Gao, X. (2021). Determinants of profitability in Chinese companies. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04-2021-0539
Amihud, Y., & Mendelson, H. (1991). Liquidity, Maturity, and the Yields on U.S. Treasury Securities. The Journal of Finance, 46(4), 1411–1425. https://doi.org/10.1111/j.1540-6261.1991.tb04623.x
Baltagi, B. H. (2014). Panel Data and Difference-in-Differences Estimation. In Encyclopedia of Health Economics (Vol. 2). Elsevier Ltd. https://doi.org/10.1016/B978-0-12-375678-7.00720-3
Baltagi, B. H. (2021). Econometric Analysis of Panel Data (Sixth Edit). Springer Cham. https://doi.org/https://doi.org/10.1007/978-3-030-53953-5
Beck, R., Ferrucci, G., Hantzsche, A., & Rau-Göhring, M. (2017). Determinants of sub-sovereign bond yield spreads – The role of fiscal fundamentals and federal bailout expectations. Journal of International Money and Finance, 79(0), 72–98. https://doi.org/10.1016/j.jimonfin.2017.08.003
Berk, J. B., & DeMarzo, P. M. (2017). Corporate Finance. In Pearson (Fourth Edi). Pearson Education Limited.
Breusch, T. ., & Pagan, A. . (1980). The Lagrange Multiplier Test and Its Applications to model Specification in Econometrics. The Review of Economic Studies, 47(1), 239–253. https://doi.org/https://doi.org/10.2307/2297111
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial Management: Theory and Practice. In Cengage Learning (16th Editi). Cengage Learning.
Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (16th ed.). Cengage Learning.
Calomiris, C. W., Larrain, M., Schmukler, S. L., & Williams, T. (2022). Large International Corporate Bonds: Investor Behavior and Firm Responses. Journal of International Economics, 137(0), 1–36. https://doi.org/10.1016/j.jinteco.2022.103624
Camino-Mogro, S., & Bermúdez-Barrezueta, N. (2019). Determinants of profitability of life and non-life insurance companies: evidence from Ecuador. International Journal of Emerging Markets, 14(5), 831–872. https://doi.org/10.1108/IJOEM-07-2018-0371
Cavallo, E. A., & Valenzuela, P. (2009). The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis. In International Journal of Finance & Economics. https://doi.org/10.1002/ijfe.398
Cicchiello, A. F., Cotugno, M., Monferrà, S., & Perdichizzi, S. (2022). Credit Spreads in the European Green Bond market: A Daily Analysis of the Covid-19 Pandemic Impact. Journal of International Financial Management and Accounting, 33(3), 383–411. https://doi.org/10.1111/jifm.12150
Dutordoir, M., Pappas, K., Xu, A. L., & Zeng, C. (Colin). (2023). Covenants in Convertible Bonds: Boon or Boilerplate? Journal of Corporate Finance, 80(0), 1–23. https://doi.org/10.1016/j.jcorpfin.2023.102392
Fabian, E., & Philip, A. (2017). Macroeconomic and Institutional Determinants of Domestic Corporate Bond Yield Spread in Nigeria. Journal of Internet Banking and Commerce, 22(1), 1–19. http://www.icommercecentral.com
Fabozzi, F. J., & Mann, S. V. (2021). The Handbook of Fixed Income Securities (11 edition). Mc Graw Hill.
Fridson, M. S., & Alvarez, F. (2022). Financial Statement Analysis: A Practitioner’s Guide (5 Edition). Wiley Finance Series.
Gujarati, D. N., & Porter, D. C. (2020). Econometría (Quinta Edi). Mc Graw Hill.
Hausman, J. . (1978). Specification Tests in Econometrics. Econometrica, 46(6), 1251–1271. https://doi.org/10.1007/978-981-10-5466-2_5
Hui, J. Y. (2020). Social Media and the 2019 Indonesian Elections. Southeast Asian Affairs, 155–172. https://www.jstor.org/stable/26938889
Isayas, Y. N. (2022). Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia. Cogent Economics & Finance, 10(1), 1–15. https://doi.org/10.1080/23322039.2022.2031433
Jareño, F., Escribano, A., & Umar, Z. (2023). The Impact of the Covid-19 Outbreak on the Connectedness of the BRICS’s Term Structure. Humanities and Social Sciences Communications, 10(1). https://doi.org/10.1057/s41599-022-01500-1
Koijen, R. S. J., Lustig, H., & Van Nieuwerburgh, S. (2017). The Cross-Section and Time Series of Stock and Bond Returns. Journal of Monetary Economics, 88(0), 50–69. https://doi.org/10.1016/j.jmoneco.2017.05.006
Martellini, L., Priaulet, P., & Priaulet, S. (2003). Fixed-Income Securities: Valuation, Risk Management, and Portfolio Strategies. Wiley Finance.
Mishkin, F. S., & Eakins, S. G. (2011). Financial Market and Institution (Seventh Ed). The Prentice Hall Series in Finance.
Nawalkha, S. K., Soto, G. M., & Beliaeva, N. A. (2005). Term Structure Estimation. Wiley Finance.
O’Haraa, M., & Zhou, X. (2021). Anatomy of a Liquidity Crisis : Corporate Bonds in the Covid-19 Crisis. Journal of Finance, 142(1), 46–68. https://doi.org/10.1016/j.jfineco.2021.05.052
Paule-Vianez, J., Orden-Cruz, C., & Escamilla-Solano, S. (2022). Influence of Covid-Induced Fear on Sovereign Bond Yield. Economic Research-Ekonomska Istrazivanja, 35(1), 2173–2190. https://doi.org/10.1080/1331677X.2021.1934509
Perry, L. G., Evans, D. A., & Liu, P. (1991). Bond Rating Discrepancies and the Effect on Municipal Bond Yields. Quarterly Journal of Business and Economics, 30(1), 110–127.
Poghosyan, T. (2014). Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies. Economic Systems, 38(1), 100–114. https://doi.org/10.1016/j.ecosys.2013.07.008
Ross, S. A., Westerfield, R. W., Jaffe, J., Jordan, B. D., & Shue, K. (2021). Corporate Finance. In NBER Working Papers (Thirteen E). Mc Graw Hill. http://www.nber.org/papers/w16019
Saadaoui, A., Elammari, A., & Kriaa, M. (2022). Credit Rating Announcement and Bond Liquidity: the Case of Emerging Bond Markets. Journal of Economics, Finance and Administrative Science, 27(53), 86–104. https://doi.org/10.1108/JEFAS-08-2020-0314
Shu, H.C., Chang, J.H., Tsai, C.F., & Yang, C.-W. (2023). Impacts of Operational Risks and Corporate Governance on Corporate Bond Yield Spreads. Advances in Pacific Basin Business, Economics and Finance, 11, 145–167. https://doi.org/10.1108/S2514-465020230000011007
Subramanyam, K. R. (2014). Financial Statement Analysis. In University of Southern (11th Editi).
Toyoda, T. (1974). Use of the Chow Test under Heteroscedasticity. Econometrica, 42(3), 601–608. https://doi.org/https://doi.org/10.2307/1911796
Xie, Y., Tian, Y., Xiao, Z., & Zhou, X. (2018). Dependence of Credit Spread and Macro-conditions Based on an Alterable Structure Model. PLOS ONE, 13(5), 1–15. https://doi.org/10.1371/journal.pone.0196792
Zhang, X., & Wang, Y. (2022). Impact of Credit Rating on the Bond Market Based on TIC Model. Mathematical Problems in Engineering, 2022(0), 1–7. https://doi.org/10.1155/2022/1488606
Published
2024-02-20
How to Cite
SIHOMBING, Pardomuan; BONOWATI, Amanda Yosephine; ZAKCHONA, Elia.
The Moderating Role of Leverage on Corporate Bonds Yield.
Jurnal Ekonomi Kuantitatif Terapan, [S.l.], v. 17, n. 1, p. 37-51, feb. 2024.
ISSN 2303-0186.
Available at: <https://ojs.unud.ac.id/index.php/jekt/article/view/112158>. Date accessed: 28 apr. 2024.
doi: https://doi.org/10.24843/JEKT.2024.v17.i01.p03.
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