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Solicited versus Unsolicited Ratings: The Role of Selection

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  • Anna Gibert

Abstract

This paper analyses the extent to which selection explains the observed discrepancy between solicited and unsolicited ratings. I propose a model of selection with truth telling rating agencies and borrowers with the ability to veto the revelation of the rating. The observed difference between the two categories of ratings in different markets is in line with the prediction of the model. In the financial sector, for example, selection of less creditworthy borrowers into unsolicited status makes unsolicited ratings grades lower on average than those solicited. In the government sector, on the other hand, there is a positive selection of borrowers into unsolicited ratings.

Suggested Citation

  • Anna Gibert, 2018. "Solicited versus Unsolicited Ratings: The Role of Selection," BAFFI CAREFIN Working Papers 1870, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp1870
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    References listed on IDEAS

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    1. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
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    5. Patrick Roy, 2013. "Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(1), pages 53-86, August.
    6. Winnie P. H. Poon & Junsoo Lee & Benton E. Gup, 2009. "Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2‐3), pages 285-314, March.
    7. Paolo Fulghieri & Günter Strobl & Han Xia, 2014. "The Economics of Solicited and Unsolicited Credit Ratings," Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 484-518.
    8. Winnie P. H. Poon & Michael Firth, 2005. "Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1741-1771, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unsolicited ratings; Sovereign debt; Rating Agencies; Ancillary services;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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