Solicited and Unsolicited Credit Ratings : A Global Perspective
AbstractWe conducted a global study of the long-term issuer ratings of nonfinancial firms from Standard and Poor's Ratings Services (S&P) for the period 19982003. Specifically, we focused on the solicited versus unsolicited ratings and sample-selection bias in the analysis. Unlike the literature, we adopted an improved method using Wooldridges instrumental-variable approach to mitigate the concern of specification errors in Heckmans model. We found that the probability of seeking a long-term issuer rating is positively related to the size and profitability of the firm, and negatively related to the growth opportunities and debt levels of the firm. The credit rating is positively related to the sovereign rating, size, and profitability of the issuer, and negatively related to the debt ratio of the issuer. Consistent with the literature, we found sample-selection bias in credit ratings. Our findings suggest that the firms with solicited ratings seem to be more profitable, more liquid, and have lower leverage than the issuers with unsolicited ratings. After controlling for sample-selection bias and some key financial ratios, we found that unsolicited firms, on average, seem to have lower long-term issuer ratings.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22815.
Date of creation: Jan 2010
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issuer ratings; solicited ratings; unsolicited ratings;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
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- Patrick Roy, 2013.
"Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?,"
Journal of Financial Services Research,
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- Heckman, James, 2013.
"Sample selection bias as a specification error,"
Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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- Winnie P. H. Poon & Junsoo Lee & Benton E. Gup, 2009. "Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 285-314, 03.
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