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Are the Ratings Good Indicators of the Creditworthiness of the Entities that Qualify?

In: Bank Strategy, Governance and Ratings

Author

Listed:
  • Carlos Salvador Muñoz
  • José Manuel Pastor
  • Juan Francisco Fernández Guevara

Abstract

A rating is an indicator, normally drawn up by a specialized agency, which measures the solvency of an entity or issue of assets by means of a categorical scale. The ultimate purpose of ratings is to inform other market agents (investors and regulators) regarding the solvency of the entities evaluated and/or of the assets issued. The rating reduces one of the main problems of markets: the asymmetry of information between issuers and other agents, since the latter do not have access to all the information relating to the solvency of the entity that is being rated (Losada, 2009).

Suggested Citation

  • Carlos Salvador Muñoz & José Manuel Pastor & Juan Francisco Fernández Guevara, 2011. "Are the Ratings Good Indicators of the Creditworthiness of the Entities that Qualify?," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Philip Molyneux (ed.), Bank Strategy, Governance and Ratings, chapter 6, pages 109-133, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-31386-6_7
    DOI: 10.1057/9780230313866_7
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    Cited by:

    1. Salvador, Carlos & Pastor, Jose Manuel & Fernández de Guevara, Juan, 2014. "Impact of the subprime crisis on bank ratings: The effect of the hardening of rating policies and worsening of solvency," Journal of Financial Stability, Elsevier, vol. 11(C), pages 13-31.

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