Credit ratings of Chinese firms by domestic and global agencies: Assessing the determinants and impact

The market for the credit ratings of Chinese firms is large and growing. We analyse Chinese firms that have ratings from both domestic and global agencies. Despite the similar symbols, the rating scales of the domestic and global agencies clearly differ – as any single company's global agency and domestic agency ratings differ by 6–7 notches on average. Focusing on the comparable rank ordering of domestic and global credit ratings, we test general hypotheses about the impact of the ratings industry structure on ratings outcomes. While potential ownership-related conflicts of interest and growth of the business are not consistently associated with higher ratings, ratings industry competition is related to inflated ratings. There is also weak evidence that the downgrade of the Chinese sovereign rating by foreign rating agencies has impacted the global ratings of corporations, particularly when they are state owned. While factors relating to rating industry structure do not significantly impact bond yields, both domestic and global ratings are significant factors in yield spread multivariate regressions, and thus appear to add value beyond financial variables.