Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?
AbstractThis paper analyses the effect of soliciting a rating on the actual outcome of bank ratings. Using two sample banks (one rated by Fitch and one rated by S&P), I find evidence that unsolicited ratings tend to be lower than solicited ones, after accounting for differences in observable bank characteristics. This downward bias does not seem to be explained by the fact that better-quality banks self-select into the solicited group. Rather, unsolicited ratings appear to be lower because they are based on public information and are therefore dependent on the quantity of public information disclosed by the banks. As a result, unsolicited ratings tend to be more conservative than solicited ratings, which incorporate both public and non-public information. While the latter result is also consistent with the fact that credit rating agencies may blackmail low-disclosure firms, the findings suggest that blackmailing—if it is actually used—is ineffective in making these firms start to pay for a rating. Copyright Springer Science+Business Media, LLC 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Financial Services Research.
Volume (Year): 44 (2013)
Issue (Month): 1 (August)
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Web page: http://www.springerlink.com/link.asp?id=102934
Credit rating agencies; Unsolicited ratings; Self-selection; Public disclosure; Accounting transparency; G15; G18; G21;
Other versions of this item:
- Patrick Van Roy, 2006. "Is there a difference between solicited and unsolicited bank ratings and if so, why ?," Working Paper Research 79, National Bank of Belgium.
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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