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Misconceptions about Credit Ratings - An Empirical Analysis of Credit Ratings across Market Sectors and Agencies


  • Kerstin Lopatta

    (University of Oldenburg - Accounting and Corporate Governance & ZenTra)

  • Magdalena Tchikov

    (University of Oldenburg - Accounting and Corporate Governance & ZenTra)

  • Finn Marten Körner

    (University of Oldenburg & ZenTra)


Rating agencies strive to assign reliable, objective and comparable credit ratings as an indicator on one consistent scale. We test empirically how rating agencies meet their promise of providing objective and comparable assessments of credit risk of an issuer and thus creditworthiness. Logistic regressions of ratings across agencies and market sectors point to highly significant differences of ratings for issuers in the 11 market sectors in our sample. Based on inter-sectoral comparisons, we detect a systematically positive rating bias for financial issuers, while issuers operating in the cyclical consumer goods sector face relatively disadvantageous credit ratings. Our results indicate that the current assessment models and measurement standards do not only contain issuers’ credit risk but to a considerable extent also an assessment of industry and operating risk. Credit ratings should therefore not be equated with the likelihood of default as is often done in empirical applications. Stakeholders and especially investors – as well as researchers – should be aware of this misconception and not refer to ratings as pure measures of default risk.

Suggested Citation

  • Kerstin Lopatta & Magdalena Tchikov & Finn Marten Körner, 2013. "Misconceptions about Credit Ratings - An Empirical Analysis of Credit Ratings across Market Sectors and Agencies," ZenTra Working Papers in Transnational Studies 22 / 2013, ZenTra - Center for Transnational Studies, revised Nov 2013.
  • Handle: RePEc:zen:wpaper:22

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    More about this item


    credit ratings; credit risk; default probabilities; comparability;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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