Credit ratings quality in uncertain times

Najah Attig, Hamdi Driss and Sadok El Ghoul

Journal of International Financial Markets, Institutions and Money, 2021, vol. 75, issue C

Abstract: We investigate ratings quality across uncertain and normal times proxied by variations in economic policy uncertainty. We find that increased policy uncertainty is associated with weaker rating standards. This finding is unrelated to variations in macroeconomic conditions and holds when we use an instrumental variable approach. The effect is more pronounced for firms with which rating agencies have more conflicts of interest. We also find that ratings are less informative about firm credit quality in times of heightened policy uncertainty. These findings suggest that increased policy uncertainty distorts ratings quality through a conflicts of interest channel.

Keywords: Ratings quality; Conflicts of interest; Policy uncertainty (search for similar items in EconPapers)
JEL-codes: D83 G18 G24 G28 L15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:75:y:2021:i:c:s1042443121001591

DOI: 10.1016/j.intfin.2021.101449

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