The information content of Australian credit ratings: A comparison between subscription and non-subscription-based credit rating agencies

Abstract

We classify credit rating agencies into two groups: subscribing and non-subscribing.Investors can access (non-subscribing) credit reports released to the public for no charge, or investors can subscribe to the fee-paying (subscribing) credit reports from agencies. Our results suggest that the information content of non-subscribing credit agencies is very low, whereas positive excess returns exist up to eight months after the announcement of credit upgrades from the subscription-only agencies. We support the hypothesis proposed in Stiglitz (1976, 1980). Investors who spend resources on information acquisition should receive compensation for their information advantage, or there would be no incentive for such activity. JEL classification: G14; G39

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

“…147 Another line of research finds that ratings reduce information asymmetry, thereby facilitating seasoned and initial public offerings of equities (Liu and Malatesta, 2005; An and Chan, 2008). Finally, a related string of research adopts an intermediate position, inferring that market measures and CRAs’ ratings possess equal forecasting value (Löffler, 2004), that ratings may perform a useful complementary‐supportive role to market measures of creditworthiness (Ederington et al, 1984; Flandreau et al, 2011), or that the informational value of ratings depends on whether CRAs are certified or non‐certified, subscription‐based or non‐subscription‐based (Beaver et al, 2006; Chan et al, 2009).…”