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External Credit Ratings and Bank Lending

Author

Listed:
  • Christophe Cahn
  • Mattia Girotti
  • Federica Salvadè

Abstract

We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms within each rating class receive a positive rating surprise. We find that such firms enjoy greater and cheaper access to bank credit. In particular, they obtain more credit from previously less informed lenders, and start new bank relationships more easily. Consequently, they rely on equity to a lower extent and invest more. These findings suggest that credit ratings help reducing the hold-up problem and increase competition among banks.

Suggested Citation

  • Christophe Cahn & Mattia Girotti & Federica Salvadè, 2018. "External Credit Ratings and Bank Lending," Working papers 691, Banque de France.
    • Handle: RePEc:bfr:banfra:691
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    References listed on IDEAS

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    Cited by:

    1. Delatte, Anne-Laure & , & Imbs, Jean, 2019. "The transmission channels of unconventional monetary policy: Evidence from a change in collateral requirements in France," CEPR Discussion Papers 13693, C.E.P.R. Discussion Papers.
    2. Auria, Laura & Bingmer, Markus & Graciano, Carlos Mateo Caicedo & Charavel, Clémence & Gavilá, Sergio & Iannamorelli, Alessandra & Levy, Aviram & Maldonado, Alfredo & Resch, Florian & Rossi, Anna Mari, 2021. "Overview of central banks’ in-house credit assessment systems in the euro area," Occasional Paper Series 284, European Central Bank.
    3. Sergio Gavilá & Alfredo Maldonado & Antonio Marcelo, 2020. "The Banco de España in-house credit assessment system," Financial Stability Review, Banco de España, issue MAY.
    4. Sergio Gavilá & Alfredo Maldonado & Antonio Marcelo, 2020. "The Banco de España in-house credit assessment system," Financial Stability Review, Banco de España, issue Spring.
    5. Sergio Gavilá & Alfredo Maldonado & Antonio Marcelo, 2020. "The Banco de España in-house credit assessment system," Revista de Estabilidad Financiera, Banco de España, issue Spring.
    6. Laura Auria & Markus Bingmer & Carlos Mateo Caicedo Graciano & Clémence Charavel & Sergio Gavilá & Alessandra Iannamorelli & Aviram Levy & Alfredo Maldonado & Florian Resch & Anna Maria Rossi & Step, 2021. "Overview of central banks’ in-house credit assessment systems in the euro area," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 13, Bank of Italy, Directorate General for Markets and Payment System.

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    More about this item

    Keywords

    Credit Ratings; Banks; Lending Technology; Corporate Financing; Real Effects; Holdup problem.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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