Rating opaque borrowers: why are unsolicited ratings lower?*

Bannier, Christina E.; Behr, Patrick; Güttler, André

doi:10.1093/rof/rfp025

Cited by 88 publications

(59 citation statements)

References 34 publications

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“…They argue that reputation concerns dominate and prevent CRAs from being "bribed" by customers. Bannier, Behr andGüttler (2010), like Poon (2003) and Poon and Firth (2005), investigate possible adverse selection and hold-up in the context of CRA and issuer incentives when CRAs issue ratings on an unsolicited basis.…”

Section: Related Researchmentioning

confidence: 99%

Multiple Ratings and Credit Spreads

2009

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Section: Related Researchmentioning

confidence: 99%

Multiple Ratings and Credit Spreads

2009

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“…They guard against this by setting a relatively low rating, without any ulterior motive of extortion: it is a matter of ' adverse selection ' , its price is a lower rating. This second explanation is confi rmed empirically in Gan (2004) , who studied American companies, and by Bannier et al (2010) in relation to the ratings of industrial companies and banks. However, no evidence of conservative behaviour on the part of CRAs was found in the case of insurers .…”

Section: Solicited and Unsolicited Ratingsmentioning

confidence: 76%

“…This demonstrates that a CRA can effectively enforce a solicited rating by issuing an unsolicited rating. The CRA gains a poor reputation as a consequence ( Bannier et al , 2010 ). Academic research has shown that unsolicited ratings are generally lower than solicited ratings ( Byoun and Shin, 2002 ;Bannier et al , 2010 ).…”

Section: Solicited and Unsolicited Ratingsmentioning

confidence: 99%

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The quality of credit ratings and liability: The Dutch view

Duffhues¹,

Weterings²

2011

Int J Discl Gov

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Credit rating agencies (CRAs) such as Standard & Poor ' s and Moody ' s have existed since the beginning of the twentieth century. Their main objective is to increase the effi ciency of the fi nancial markets, by producing ratings expressing the creditworthiness of companies with respect to loans and credits. The intermediary position of CRAs places high demands on the effi ciency of the rating process and the avoidance of confl icts of interest. In practice there is some doubt as to the realism of these objectives and hence the usefulness of ratings even though, paradoxically, they do enjoy broad acceptance. This article discusses the question of whether the criticism that investors and companies have of CRAs is always justifi ed, and what action should be taken when that criticism is justifi ed. Reference is made to the objectives of CRAs and the doubts about their effi ciency and effectiveness that have arisen in many national and international publications. This article provides an insight into how CRAs operate and how this is judged within a society. CRAs have an information transformation function, and the existence of dual information asymmetry might have a negative impact on this. Holding CRAs liable is one of the possible solutions. Legal measures, such as breach of contract and negligence, may offer CRAs incentives to make every reasonable effort to prepare adequate credit ratings and to update ratings in a timely manner. It is nonetheless diffi cult (in the context of liability) to make an objective assessment because CRAs, too, must work under uncertain relationships.

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“…Prior firm performance dictates whether or not a formal credit rating is granted. The fact that many ratings are "solicited" compounds this potential issue (Bannier et al, 2010). Byoun et al (2014) demonstrate that "solicited" ratings reflect a mix of insider and public information, while unsolicited ratings largely exclude insider information.…”

Section: Introductionmentioning

confidence: 99%

Credit scores and the performance of newly-listed stocks: an exploration of the Chinese A-share market

Cai

McGuinness

Zhang

2017

Rev Quant Finan Acc

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Acknowledgements:We thank S&P Global Market Intelligence for the provision of Credit Model (CM) scores necessary for the completion of this study. This project developed from a request by S&P in February 2014 to assess the power of CM scores in explaining post-IPO performance. Our investigation offers a framework for assessing this question as well as other related themes. We especially thank Clemens Thym, Michelle P. Cheong and Phillip Lee of S&P Global Market Intelligence for earlier discussions, suggestions and input. Additionally, we express thanks to Daniel Chan and Jack Wong.We also thank an anonymous reviewer for comments rendered on an earlier draft of this paper. We find that CM scores exhibit positive association with post-listing buy-and-hold stock returns. Even stronger associations emerge when considering fundamental accounting performance, especially over longer-run horizons. In respect of the listing of Chinese Ashare firms, we conjecture that greater alignment between secondary market prices and fundamentals would likely have arisen had such scores been in the public domain during the study period.

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Rating opaque borrowers: why are unsolicited ratings lower?*

Cited by 88 publications

References 34 publications

Multiple Ratings and Credit Spreads

Multiple Ratings and Credit Spreads

The quality of credit ratings and liability: The Dutch view

Credit scores and the performance of newly-listed stocks: an exploration of the Chinese A-share market

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