 Have ratings become more accurate?Zvika Afik and Koresh Galil Journal of Banking & Finance, 2025, vol. 170, issue C Abstract: Prior studies indicate that rating agencies have adopted more stringent rating criteria over time. In this paper, we hypothesize that improvements in rating accuracy can explain some of these observed patterns. We present empirical evidence supporting this hypothesis, demonstrating that enhancements in rating methodologies have resulted in better default prediction. Our analysis also reveals that, over time, ratings have become more closely aligned with accounting fundamentals and a market-based measure of default risk (distance-to-default). These findings provide a fresh perspective on the factors influencing changes in credit rating standards and emphasize the significance of methodological advancements in credit risk assessment. This research introduces the novel argument that enhancing rating accuracy is an economic rationale for long-term rating trends. The findings underscore the continued importance of credit ratings despite criticisms, suggesting that ratings remain a valuable tool for investors. Keywords: Credit risk; Credit rating; Default prediction (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:170:y:2025:i:c:s0378426624002516 DOI: 10.1016/j.jbankfin.2024.107337 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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