Reputations and credit ratings: Evidence from commercial mortgage-backed securities

Ramin P. Baghai and Bo Becker

Journal of Financial Economics, 2020, vol. 135, issue 2, 425-444

Abstract: How do changes in a rating agency's reputation affect the ratings market? We study the dynamics of credit ratings after Standard & Poor's (S&P) was shut out of a large segment of the commercial mortgage-backed securities (CMBS) ratings market following a procedural mistake. Exploiting the fact that most CMBS have ratings from multiple agencies, we show that S&P subsequently eased its standards compared to other raters. This coincided with a partial recovery in the number of deals S&P was hired to rate. Our findings suggest that an agency can regain market share after suffering reputational damage by issuing optimistic ratings.

Keywords: Credit ratings; Reputation; Competition; Information quality; Commercial mortgage-backed securities (search for similar items in EconPapers)
JEL-codes: G20 G24 G28 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (14)

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Working Paper: Reputations and credit ratings: evidence from commercial mortgage-backed securities (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:135:y:2020:i:2:p:425-444

DOI: 10.1016/j.jfineco.2019.06.001

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