This paper seeks to investigate the determinants of Malaysian bond ratings. Bond has become Malaysia’s leading source of fund. The failures of credit rating agencies are no stranger to world’s financial market. They are blamed for the slow responses during Asian financial crisis and bankruptcy cases of large corporations. Moreover, the presence of information asymmetry problem in the market has complicate credit rating agencies and external stakeholders to correctly assess the true value of the firm and its probability of default. Hence, this paper provides a new and adequate model that takes into account various risk factors to further understands the factors that affect firms’ creditworthiness. This model could reduce investors’ over-reliance on credit ratings, information asymmetry problems and become a substitute of the current credit ratings model. This paper specific objective is to investigate which risk factors are the best determinants of bond ratings. The final sample includes a total of 175 fixed-rated bond issuances from 37 corporate listed firms between the years 2005 to 2013. Multinomial logistic regression is used in investigating the relationships. The study finds that there is a significant relationship between risk factors and bond ratings, where firm’s risk factor alone is enough to explain higher rated bonds, while the other two risk factors are only significant in determining bonds with lower ratings. Moreover, robustness check finds that the model has 91.67% classification accuracy, with a total of only 10 wrongly classified observations out of 120 total observations.
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