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Foreign ownership and the credibility of national rating agencies: Evidence from Korea

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  • Ferri, Giovanni
  • Lacitignola, Punziana
  • Lee, Jeong Yeon

Abstract

By analyzing bond price reactions to rating changes in Korea, this study adds a new angle to the existing literature on Global Rating Agencies (GRAs, i.e. Moody’s, S&P’s, Fitch) with higher reputation/independence vs. National Rating Agencies (NRAs) with more in-depth local knowledge. Faced with substantial regulatory burdens, GRAs have chosen to operate indirectly in the Korean domestic market by acquiring local NRAs. In our event study, cumulative abnormal returns following downgrades by a wholly domestically owned NRA tend to dominate those from downgrades by two affiliates of GRAs. This casts doubt on the additional information value of reputation capital acquired through GRA ownership as perceived by emerging markets.

Suggested Citation

  • Ferri, Giovanni & Lacitignola, Punziana & Lee, Jeong Yeon, 2013. "Foreign ownership and the credibility of national rating agencies: Evidence from Korea," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 762-776.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:3:p:762-776
    DOI: 10.1016/j.jce.2013.03.014
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    6. Mark M. Spiegel, 2012. "Developing Asian Local Currency Bond Markets: Why and How?," Chapters, in: Masahiro Kawai & David G. Mayes & Peter Morgan (ed.), Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia, chapter 11, Edward Elgar Publishing.
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    More about this item

    Keywords

    Global credit rating agencies; National credit rating agencies; Market reaction; Event study;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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