Economic Policy Uncertainty and Corporate Bond Rating

Purpose This study examines the relationship between economic uncertainty and corporate bond ratings. Methodology Using a sample of 2,847 firm－years from 2011 to 2022, this study conducts empirical analyses on the association of the Economic Policy Uncertainty index (EPU Index) with corporate bond ratings. Findings From regression analyses, this study finds a significant negative association between economic policy uncertainty and the corporate bond ratings. More specifically, the study finds that North Korea’s geopolitical risk and global economic policy uncertainty are significantly associated with corporate bond ratings. In addition, the results from this study show that the negative association between economic policy uncertainty and corporate bond rating is to be alleviated for firms listed on the Korea Composite Stock Price Index market (KOSPI market). Implications This study has academic and practical contributions as it discovered that macroeconomic exogenous variables such as economic policy uncertainty and geopolitical risk can be one of important determinants of credit ratings. The empirical results of this study can be used as useful information for policy development and decision－making process of corporate credit rating.