Investor-paid rating agency coverage and the quality of issuer-paid credit ratings

China's credit rating market has long been dominated by issuer-paid credit rating agencies (CRAs), raising concerns about rating inflation and delayed risk disclosure. This study examines whether the entry of China Bond Rating Co., Ltd. (CBR), China's first investor-paid CRA, improves the rating quality of incumbent issuer-paid CRAs. Using rating adjustments as a proxy for rating quality, the results show that CBR coverage significantly increases the downgrade propensity of issuer-paid CRAs, while having no significant effect on their upgrade behavior. Market reactions in both stock and bond markets further indicate that downgrades issued by issuer-paid CRAs become more informative following CBR coverage. Mechanism analyses reveal that CBR improves rating quality primarily by strengthening the reputation incentives of issuer-paid CRAs rather than through methodological learning. Consistent with CBR's role in providing incremental credit-risk information, the effect is more pronounced among firms with weaker internal and external information environments. Overall, the findings highlight the governance role of investor-paid CRAs and suggest that enhancing information transparency can effectively discipline issuer-paid rating agencies.