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External Credit Ratings and Bank Lending

Author

Listed:
  • Christophe Cahn
  • Mattia Girotti
  • Federica Salvadè

Abstract

We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms within each rating class receive a positive rating surprise. We find that such firms enjoy greater and cheaper access to bank credit. In particular, they obtain more credit from previously less informed lenders, and start new bank relationships more easily. Consequently, they rely on equity to a lower extent and invest more. These findings suggest that credit ratings help reducing the hold-up problem and increase competition among banks.

Suggested Citation

  • Christophe Cahn & Mattia Girotti & Federica Salvadè, 2018. "External Credit Ratings and Bank Lending," Working papers 691, Banque de France.
  • Handle: RePEc:bfr:banfra:691
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit Ratings; Banks; Lending Technology; Corporate Financing; Real Effects; Holdup problem.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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