Working Paper: NBER ID: w15331
Authors: Dion Bongaerts; K.J. Martijn Cremers; William N. Goetzmann
Abstract: This paper explores the economic role credit rating agencies play in the corporate bond market. We consider three existing theories about multiple ratings: information production, rating shopping and regulatory certification. Using differences in rating composition, default prediction and credit spread changes, our evidence only supports regulatory certification. Marginal, additional credit ratings are more likely to occur because of, and seem to matter primarily for regulatory purposes, but do not seem to provide significant additional information related to credit quality.
Keywords: No keywords provided
JEL Codes: G12; G14; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Addition of a Fitch rating (G24) | Regulatory rating improvement (G18) |
| Fitch rating as investment grade (G24) | Decrease in credit spreads (G19) |
| Expectations of volatility in ratings (G17) | Desire to obtain additional ratings (G24) |
| Fitch rating (G24) | Regulatory certification hypothesis dominates information production hypothesis (G18) |