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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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    Cited by:

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    2. Jaballah, Jamil & Peillex, Jonathan & Weill, Laurent, 2018. "Is Being Sharia compliant worth it?," Economic Modelling, Elsevier, vol. 72(C), pages 353-362.
    3. Turki Rashed Alshammari & Jean-Noël Ory, 2023. "The Impact of Religious Announcements on Stock Prices and Investment Decisions on the Saudi Stock Exchange," Post-Print hal-04105704, HAL.
    4. 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).
    5. 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.
    6. Luitel, Prabesh & Vanpée, Rosanne & De Moor, Lieven, 2016. "Pernicious effects: How the credit rating agencies disadvantage emerging markets," Research in International Business and Finance, Elsevier, vol. 38(C), pages 286-298.
    7. Hundt Steffen & Horsch Andreas, 2018. "The Effects of Sanctions on the Lending Policy and the Value of International Banks: the Case of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 14(3), pages 1-13, December.
    8. Hung, Mingyi & Kraft, Pepa & Wang, Shiheng & Yu, Gwen, 2022. "Market power and credit rating standards: Global evidence," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    9. Hu, Xiaolu & Huang, Haozhi & Pan, Zheyao & Shi, Jing, 2019. "Information asymmetry and credit rating: A quasi-natural experiment from China," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 132-152.
    10. Marandola, Ginevra, 2021. "Local Credit Rating Agencies: Is their economic role underrated?," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 143-156.

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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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