The impact of the supervisory board on bond ratings of non-financial companies

  • Received October 1, 2019;
    Accepted December 10, 2019;
    Published February 6, 2020
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  • Article Info
    Volume 17 2020, Issue #1, pp. 15-23
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    1 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

Issuing bonds is one of the alternative ways for non-financial companies to get money from the public besides borrowing money from banks. Compared with getting money banks, obtaining money from the bond market is slightly economical because the companies are not essential to borne the intermediation cost anymore. As a consequence, the companies in the bond market will get the assessment from the appointed agency. Furthermore, the rating of bonds will determine their reputation.
Mentioning the literature review, the bond ratings are affected by the features of the supervisory board: size, independence, and audit committee. Therefore, this research intends to attain two goals. Firstly, it aims to prove and analyze the impact of the supervisory board size and independence, as well as the audit committee size on the company’s possibility to get a high bond rating with profitability as the control variable. Secondly, it intends to know the accuracy rate of grouping the company bond ratings through the classification matrix.
The population originates from the non-financial companies. The total samples are determined by the Slovin formula with a boundary of the fault of 10%. Based on this formula, the total samples are 36 companies. Furthermore, they are randomly grabbed from the population. The ordered probit regression model and the classification matrix are utilized to analyze the data.
Based on the data analysis, this research finds out that the supervisory board size and independence, the audit committee size, and profitability positively affect the bond ratings. It means that the number of the commissioner board and the members of the audit committee have to be added until achieving the maximum level to monitor the performance of the directors so that the company can reach a high bond rating. To sum up, board governance is effective in improving the company’s bond rating.

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    • Figure 1. The normality test result on residuals
    • Table 1. Description to measure research variables
    • Table 2. Number of the companies based on the group of bond ratings
    • Table 3. Descriptive statistics of SBS, SBI, ACS, and ROA
    • Table 4. Estimation result of the ordered probit regression model: the impact of supervisory board size and independence, audit committee size, and profitability on bond rating
    • Table 5. The accuracy of grouping bond rating based on SBS, SBI, ACS, and ROA
    • Table A1. Names of the companies as the samples