Is solicitation status related to rating conservatism and rating quality?

Sheng Zhao, Fernando Moreira and Tong Wang

Journal of International Financial Markets, Institutions and Money, 2021, vol. 72, issue C

Abstract: This paper discusses the association between rating solicitation status and rating quality. Our model shows that if firms with a declining trend of performance are less likely to solicit ratings from credit rating agencies, these firms are more conservatively rated, as their self-selection behaviour is seen as a signal of high credit risk. Our empirical results support the predictions of the model proposed in this study and show that: first, when controlling for fundamental factors, unsolicited ratings are lower than solicited ones, and; second, the rating qualities of both types of ratings are not significantly different from each other.

Keywords: Credit ratings; Solicitation status; Self-selection effect; Conflict of interest (search for similar items in EconPapers)
JEL-codes: G24 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:72:y:2021:i:c:s1042443121000603

DOI: 10.1016/j.intfin.2021.101341

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