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Foreign ownership in Chinese credit ratings industry: Information revelation or certification?

Author

Listed:
  • Hu, Xiaolu
  • Shi, Jing
  • Wang, Lafang
  • Yu, Jing

Abstract

We investigate the informational roles of foreign ownership in local credit rating agencies (CRAs) in the Chinese onshore debt market, which was the world's largest emerging debt market from 2008 to 2017. We find a robust negative relationship between the bond offering yield and foreign ownership in local CRAs, which suggests that these ratings certify the credit quality of debt issuers and thus enhance the market values of new debt issues. The information content of these ratings, however, is in contrast with the information provision role of foreign-owned CRAs (global CRAs). We find that these ratings provide no or weak better predictive power of issuers’ future credit performances than domestic CRAs. In addition, we find that stock and bond market reactions at the announcements of rating revisions made by global CRAs are not significantly different from those made by their domestic counterparts. We attribute the seemingly contradictory results to the preference for foreign brands in emerging markets and/or the improved bond liquidity associated with global CRA ratings.

Suggested Citation

  • Hu, Xiaolu & Shi, Jing & Wang, Lafang & Yu, Jing, 2020. "Foreign ownership in Chinese credit ratings industry: Information revelation or certification?," Journal of Banking & Finance, Elsevier, vol. 118(C).
  • Handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301576
    DOI: 10.1016/j.jbankfin.2020.105891
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    More about this item

    Keywords

    Credit rating; Foreign ownership; Chinese debt market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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