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The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?

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Author Info
Marshall E. Blume (Finance Department, Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6367)
Felix Lim (Finance Department, Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6367)
A. Craig Mackinlay (Finance Department, Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6367)
Abstract

In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating agencies are now using more stringent standards in assigning ratings. An ordered probit analysis of a panel of firms from 1978 through 1995 suggests that rating standards have indeed become more stringent, implying that at least part of the downward trend in ratings is the result of changing standards. Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 4 (08)
Pages: 1389-1413
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Handle: RePEc:bla:jfinan:v:53:y:1998:i:4:p:1389-1413

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  3. Barnhill, Theodore M. & Souto, Marcos Rietti, 2008. "Systemic bank risk in Brazil: an assessment of correlated market, credit, sovereign and inter-bank risk in an environment with stochastic volatilities and correlations," Discussion Paper Series 2: Banking and Financial Studies 2008,13, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Güttler, André & Raupach, Peter, 2008. "The impact of downward rating momentum on credit portfolio risk," Discussion Paper Series 2: Banking and Financial Studies 2008,16, Deutsche Bundesbank, Research Centre. [Downloadable!]
  5. Efraim Benmelech & Nittai K. Bergman, 2008. "Collateral Pricing," NBER Working Papers 13874, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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