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Triple A default

Kaihua Deng and Guannan Qiao

Pacific-Basin Finance Journal, 2022, vol. 74, issue C

Abstract: Credit ratings in China are highly skewed to the top. Despite heightened regulatory scrutiny and a gradual unwinding of implicit guarantee, we document a significant trend of rating inflation in recent years. We show that shopping has a large positive impact on upgrades, and highly rated firms are more likely to default during this period. The continued loosening of rating standards is discounted by the market which partially undoes the effect of indiscriminate rating practice. While the market anticipates most rating adjustments, it converges to a unique AA- boundary effect amidst the pool of increasingly higher ratings.

Keywords: Credit rating agency; Default; Rating inflation; Shopping (search for similar items in EconPapers)
JEL-codes: G14 G24 G28 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101792

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22000877