Abstract

This study investigates whether the trading volume is associated with corporate bond ratings. Prior studies related with the trading volume suggest that the trading volume is positively associated with information asymmetry and is negatively associated with the quality of accruals. In the respect, if the trading volume affects bond ratings as negative factor, we predict that bond ratings have negative association with the trading volume level. Also we expect that earnings quality(income smoothing level and accruals quality) affects relation between trading volume and corporate bond ratings. The hypothesis is tested by using sample firms listed on the Korean Stock Exchange from the year of 2000 to the year of 2011 inclusively. After controlling for variables related with bond ratings as reported in previous studies, the regression coefficients for the trading volume level show statistically significant negative sign. Also empirical results indicate that high-earnings quality(income smoothing level and accruals quality) decrease negative relation between trading volume and corporate bond ratings. Empirical results are consistent with our hypothesis. These result indicates that the trading volume level is negatively associated with bond ratings. The results of this study suggest the following implications. First, the trading volume level is positively associated with information asymmetry. Second, the bond ratings are negatively associated with information asymmetry. Finally, the results may help policy makers understand the trading volume.

Keywords

• Trading Volume
• Corporate Bond ratings
• Earnings Quality(Income Smoothing Level and Accruals Quality)

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