 Opportunistic behaviors of credit rating agencies and bond issuersGitae Park and Ho-Young Lee Pacific-Basin Finance Journal, 2018, vol. 47, issue C, 39-59 Abstract: Using credit rating data from the three credit rating agencies (CRAs) in Korea, we examine whether bond issuers and CRAs engage in rating shopping and catering. First, we find that Korean bond issuers, who are required by law to receive two or more ratings, tend to fire or switch from CRAs that assign lower ratings than other CRAs. Second, when a bond issuer hires an additional CRA, the new CRA assigns a higher rating than incumbent CRAs. Lastly, we see that increased competition, which is measured by the number of CRAs hired by a given bond issuer, affects the likelihood of an upgrade occurring. Although CRAs often upgrade ratings when their rivals assign higher ratings, our findings show that higher competition further increases the likelihood that CRAs will upgrade ratings when there are rating disagreements. These results imply that bond issuers and CRAs engage in opportunistic behaviors that undermine the quality of credit ratings. Keywords: Rating shopping; Rating catering; Credit rating agency; Competition (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:pacfin:v:47:y:2018:i:c:p:39-59 DOI: 10.1016/j.pacfin.2017.11.003 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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