Regulating rating agencies: A conservative behavioural change

Laurence Jones, Rasha Alsakka, Owain ap Gwilym and Noemi Mantovan

Journal of Financial Stability, 2022, vol. 60, issue C

Abstract: We investigate whether the European regulatory reforms of the credit rating industry have been successful in improving the quality of financial institutions’ credit ratings. A shift to more conservative rating behaviour rather than rating quality improvement is identified, which is attributable to increased regulatory scrutiny. This change leads to a reduction in rating inflation and an increase in the number of unwarranted downgrades and false rating warnings in the post-regulatory period. A significant decrease (increase) in the informativeness of rating downgrades (upgrades) is evident. Our findings contrast with prior evidence for US corporates where reputational effects dominated.

Keywords: EU regulation of rating agencies; Rating quality; Rating conservatism, Disciplining hypothesis; Reputation hypothesis (search for similar items in EconPapers)
JEL-codes: G15 G21 G24 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:60:y:2022:i:c:s1572308922000274

DOI: 10.1016/j.jfs.2022.100999

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