Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings

Poon, Winnie P. H.; Firth, Michael

doi:10.1111/j.0306-686x.2005.00646.x

“…The opinion of practitioners supports this view: in a survey of 102 institutional investors, 89 percent said that unsolicited and solicited ratings have the same quality (Ellis 1998, p. 40). In a comprehensive study on unsolicited bank ratings from Fitch, however, Poon and Firth (2005) find a somewhat larger downward bias than in Poon's 2003 study.…”

Section: Unsolicited Ratingsmentioning

confidence: 66%

The Credit Rating Industry: Competition and Regulation

Dittrich

¹

2007

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“…In the case of banks, balance sheet data as well as income statement data serve as the main determinants of their rating. This relationship is confirmed in many studies and extended along several dimensions, for instance with country indicators (Caporale et al 2012), regulatory and supervisory indicators (Pasiouras et al 2006), or the banks' solicitation status (Poon and Firth 2005).…”

Section: Literature Reviewmentioning

confidence: 74%

The Value of a Joint Liability Scheme: Estimating Group Support for German Landesbanken

Käfer

¹

2016

AEQ

1

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper estimates the funding advantage afforded by the joint liability scheme to German Landesbanken. The advantage is estimated by computing the difference between Moody's baseline credit assessment (BCA), representing the stand-alone rating, and the adjusted BCA incorporating group support assumptions. This notch advantage is then multiplied by time-varying yield spreads between the respective notches and the rating-dependent liabilities. Our methodology estimates the funding advantage that remains when governmental support for banks formerly considered 'Too Big to Fail' (TBTF) is substantially reduced or even abolished. We find a substantial monetary funding advantage due to group support assumptions, amounting on average to a multiple of the Landesbanken's aggregated annual profits. The aggregated observations mask a distinct heterogeneity, with some of the banks being significantly more exposed to the funding advantage than others. JEL Classification:G12, G21, G24 Keywords:Too big to fail, implicit guarantee, support rating, systemic risk, Landesbanken, Haftungsverbund, joint liability scheme, institutional protection scheme, deposit insurance

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“…This paper examines whether unsolicited credit ratings are lower than solicited ratings using a global sample of nonfinancial firms. Our study is related to Poon (2003), Poon and Firth (2005), and other literature, but is distinct in two aspects. First, we use a global sample of nonfinancial firms.…”

mentioning

confidence: 88%

“…Our study also encompasses a longer sample period than Poon (2003). Second, given that the decision to seek credit ratings and credit rating determination are endogenous in the rating process, the literature (e.g., Poon and Firth 2005) primarily uses Heckman's two-step method to account for the sample-selection bias. Heckman's procedures rely on a well-specified rating decision (i.e., the decision to seek credit ratings) equation in the first step.…”

mentioning

confidence: 99%

Solicited and Unsolicited Credit Ratings: A Global Perspective

Poon¹,

Chan

²

2010

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org AbstractWe conducted a global study of the long-term issuer ratings of nonfinancial firms from Standard and Poor's Ratings Services (S&P) for the period 1998-2003. Specifically, we focused on the solicited versus unsolicited ratings and sample-selection bias in the analysis. Unlike the literature, we adopted an improved method using Wooldridge's instrumentalvariable approach to mitigate the concern of specification errors in Heckman's model. We found that the probability of seeking a long-term issuer rating is positively related to the size and profitability of the firm, and negatively related to the growth opportunities and debt levels of the firm. The credit rating is positively related to the sovereign rating, size, and profitability of the issuer, and negatively related to the debt ratio of the issuer. Consistent with the literature, we found sample-selection bias in credit ratings. Our findings suggest that the firms with solicited ratings seem to be more profitable, more liquid, and have lower leverage than the issuers with unsolicited ratings. After controlling for sample-selection bias and some key financial ratios, we found that unsolicited firms, on average, seem to have lower longterm issuer ratings.

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Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings

Cited by 92 publications

References 13 publications

The Credit Rating Industry: Competition and Regulation

The Credit Rating Industry: Competition and Regulation

The Value of a Joint Liability Scheme: Estimating Group Support for German Landesbanken

Solicited and Unsolicited Credit Ratings: A Global Perspective

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