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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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15331.

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Date of creation: Sep 2009
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Publication status: published as Dion Bongaerts & K. J. Martijn Cremers & William N. Goetzmann, 2012. "Tiebreaker: Certification and Multiple Credit Ratings," Journal of Finance, American Finance Association, vol. 67(1), pages 113-152, 02.
Handle: RePEc:nbr:nberwo:15331

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  1. John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," NBER Working Papers 8961, National Bureau of Economic Research, Inc.
  2. Michaely, Roni & Womack, Kent L, 1999. "Conflict of Interest and the Credibility of Underwriter Analyst Recommendations," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 653-86.
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  14. Winnie P. H. Poon & Michael Firth, 2005. "Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1741-1771.
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Cited by:
  1. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2009. "The credit ratings game," Economics Working Papers 1149, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Xia, Han, 2014. "Can investor-paid credit rating agencies improve the information quality of issuer-paid rating agencies?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 450-468.
  3. Grothe, Magdalena, 2013. "Market pricing of credit rating signals," Working Paper Series 1623, European Central Bank.
  4. 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).
  5. Bo Becker & Todd Milbourn, 2010. "How did increased competition affect credit ratings?," NBER Working Papers 16404, National Bureau of Economic Research, Inc.
  6. 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.
  7. Lawrence J. White, 2013. "Credit Rating Agencies: An Overview," Working Papers 13-10, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. 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.

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