Does competition affect ratings quality? Evidence from Canadian corporate bonds

Kee-Hong Bae, Hamdi Driss and Gordon S. Roberts

Journal of Corporate Finance, 2019, vol. 58, issue C, 605-623

Abstract: This paper investigates the effect of competition among credit rating agencies on ratings quality. Specifically, we study how the ratings quality of a small local rating agency (DBRS) responds to competition from a large global rating agency (S&P) in rating Canadian corporate bonds. We find that DBRS's ratings become more favorable and less informative about the credit quality of Canadian bonds in response to increased competition from S&P. Our evidence supports the view that reputation concerns are not an effective disciplinary mechanism for small rating agencies facing competitive pressure from their larger peers.

Keywords: Credit rating; Competition; Ratings inflation; Canadian rating agency (search for similar items in EconPapers)
JEL-codes: D43 G24 G28 L14 L15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:605-623

DOI: 10.1016/j.jcorpfin.2019.07.009

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