The Economics of Credit Rating Agencies

Sangiorgi, Francesco; Spatt, Chester S.

doi:10.1561/0500000048

Cited by 45 publications

(8 citation statements)

References 6 publications

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“…Earnings-announcement dates are obtained from IBES and M&A announcement dates from SDC Platinum.22 AlthoughFigure 6indicates slightly higher cumulative abnormal returns for misaligned analysts over a three-day window around rating downgrades, this difference disappears once we control for agency and calendar month effects, as we do in Internet AppendixTable IA.12.23 SeeSangiorgi and Spatt (2017) for an excellent review of the literature on the regulatory role of credit ratings.…”

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confidence: 99%

Partisan Professionals: Evidence from Credit Rating Analysts

Kempf¹,

Tsoutsoura²

2018

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Partisan perception affects the actions of professionals in the financial sector. Using a novel dataset linking credit rating analysts to party affiliations from voter records, we show that analysts who are not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. By comparing analysts with different party affiliations covering the same firm in the same quarter, we ensure that differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show analysts' partisan perception has sizable price effects on rated firms and may influence firms' investment policies.

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confidence: 99%

Partisan Professionals: Evidence from Credit Rating Analysts

Kempf¹,

Tsoutsoura²

2018

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“…Alternatively, one could study the effect of regulations that increase proxy advisors' influence, such as the 2003 SEC rule discussed above and two 2004 no‐action letters by the SEC, which clarified how asset managers can resolve their own conflicts of interest by relying on proxy advisors' recommendations . For example, according to Sangiorgi and Spatt (, p. 33), “these no‐action letters have been very controversial because of the favorable impact upon the proxy‐voting advisory firm business and the adverse societal consequences of the proxy‐voting advisory firm reducing the extent of diverse information production.”…”

Section: Empirical Implicationsmentioning

confidence: 99%

“…In related work, Sangiorgi and Spatt () provide a comprehensive overview of information production by credit rating agencies. In addition, the feature that agents can acquire information directly or via an intermediary (proxy advisor) connects our paper to theories of financial intermediation such as Diamond () and Ramakrishnan and Thakor ().…”

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confidence: 99%

Proxy Advisory Firms: The Economics of Selling Information to Voters

Malenko¹,

Malenko

2019

The Journal of Finance

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We analyze how proxy advisors, which sell voting recommendations to shareholders, affect corporate decision-making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insufficient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize profits. Overall, the advisor's presence leads to more informative voting only if its information is sufficiently precise. We evaluate several proposals on regulating proxy advisors and show that some suggested policies, such as reducing proxy advisors' market power or decreasing litigation pressure, can have negative effects. , and participants at multiple seminars and conferences for helpful comments. The authors do not have any conflicts of interest as identified in the Journal of Finance's disclosure policy.

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“…These capital requirements use credit ratings to determine the risk weights and the capital buffers of banks and insurance corporations (EIOPA, 2015b;BCBS, 2010). However, credit ratings do not reflect the true credit risk as they are often inflated (White, 2010;Fulghieri et al, 2013;Sangiorgi and Spatt, 2017).…”

Section: Introductionmentioning

confidence: 99%

“…3 For a recent review on credit ratings, see Sangiorgi and Spatt (2017). 4 Inflated credit ratings occur across asset classes and tend to be more severe for more complex asset classes (Skreta and Veldkamp, 2009), see Stanton and Wallace (2018); Vink et al (2019) on commercial mortgage-backed securities and Kiff et al (2012) on sovereign bonds.…”

Section: Introductionmentioning

confidence: 99%