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Tiebreaker: Certification and Multiple Credit Ratings

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  • DION BONGAERTS
  • K. J. MARTIJN CREMERS
  • WILLIAM N. GOETZMANN

Abstract

This paper explores the economic role credit rating agencies play in the corporate bond market. We consider three existing theories about multiple ratings: information production, rating shopping and regulatory certification. Using differences in rating composition, default prediction and credit spread changes, our evidence only supports regulatory certification. Marginal, additional credit ratings are more likely to occur because of, and seem to matter primarily for regulatory purposes, but do not seem to provide significant additional information related to credit quality.

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File URL: http://hdl.handle.net/10.1111/j.1540-6261.2011.01709.x
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Bibliographic Info

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

Volume (Year): 67 (2012)
Issue (Month): 1 (02)
Pages: 113-152

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Handle: RePEc:bla:jfinan:v:67:y:2012:i:1:p:113-152

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Cited by:
  1. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2010. "The credit ratings game," Economics Working Papers 1221, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Rossen Valkanov & Andra Ghent, 2014. "Complexity in Structured Finance: Financial Wizardry or Smoke and Mirrors," 2014 Meeting Papers, Society for Economic Dynamics 104, Society for Economic Dynamics.
  3. Dong Chen, 2014. "The Non-monotonic Effect of Board Independence on Credit Ratings," Journal of Financial Services Research, Springer, vol. 45(2), pages 145-171, April.
  4. Lawrence J. White, 2013. "Credit Rating Agencies: An Overview," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 93-122, November.
  5. Gwion Williams & Rasha Alsakka & Owain ap Gwilym, 2013. "The Impact of Sovereign Credit Signals on Bank Share Prices during the European Sovereign Debt Crisis," Working Papers 13007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  6. Darren J. Kisgen & Philip E. Strahan, 2009. "Do Regulations Based on Credit Ratings Affect a Firm's Cost of Capital?," NBER Working Papers 14890, National Bureau of Economic Research, Inc.
  7. Becker, Bo & Milbourn, Todd, 2011. "How did increased competition affect credit ratings?," Journal of Financial Economics, Elsevier, Elsevier, vol. 101(3), pages 493-514, September.
  8. Grothe, Magdalena, 2013. "Market pricing of credit rating signals," Working Paper Series 1623, European Central Bank.
  9. Xia, Han, 2014. "Can investor-paid credit rating agencies improve the information quality of issuer-paid rating agencies?," Journal of Financial Economics, Elsevier, Elsevier, vol. 111(2), pages 450-468.
  10. Pilar Abad & M. Dolores Robles, 2014. "The Risk-Return binomial after rating changes," Documentos de Trabajo del ICAE 2014-23, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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