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What role does the investor-paid rating agency play in China? Competitor or information provider

Yu-Li Huang and Chung-Hua Shen

International Review of Economics & Finance, 2019, vol. 63, issue C, 253-272

Abstract: This paper investigates whether an investor-paid rating agency plays the role of a competitor or an information provider in China. We find that the incumbent issuer-paid rating agencies regard the investor-paid rating agency, the China Bond Rating Company, Ltd. (CBRC), as a competitor. They are more likely to downgrade or less likely to upgrade ratings when the CBRC also covers the issuer. Further, the information quality of the ratings improves for the issuers that CBRC also covers. We also find that the investor-paid agency plays the role of an information provider. CBRC's rating grades and their difference with issuer-paid rating agencies can explain bond yield spreads. We further find that the effects of the improvement in the quality of the information behind the ratings are consistent for CBRC's solicited and unsolicited ratings.

Keywords: Credit rating; Issuer-paid rating agency; Investor-paid rating agency; Competition; Information provider (search for similar items in EconPapers)
JEL-codes: G15 G21 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.iref.2018.11.007

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