Foreign ownership and the credibility of national rating agencies: Evidence from Korea

Giovanni Ferri, Punziana Lacitignola and Jeong Yeon Lee

Journal of Comparative Economics, 2013, vol. 41, issue 3, 762-776

Abstract: By analyzing bond price reactions to rating changes in Korea, this study adds a new angle to the existing literature on Global Rating Agencies (GRAs, i.e. Moody’s, S&P’s, Fitch) with higher reputation/independence vs. National Rating Agencies (NRAs) with more in-depth local knowledge. Faced with substantial regulatory burdens, GRAs have chosen to operate indirectly in the Korean domestic market by acquiring local NRAs. In our event study, cumulative abnormal returns following downgrades by a wholly domestically owned NRA tend to dominate those from downgrades by two affiliates of GRAs. This casts doubt on the additional information value of reputation capital acquired through GRA ownership as perceived by emerging markets.

Keywords: Global credit rating agencies; National credit rating agencies; Market reaction; Event study (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:41:y:2013:i:3:p:762-776

DOI: 10.1016/j.jce.2013.03.014

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