Consensus credit ratings: a view from banks

Ben Lourie (), N. Bugra Ozel, Alexander Nekrasov and Chenqi Zhu
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Ben Lourie: University of California
N. Bugra Ozel: The University of Texas
Alexander Nekrasov: University of Illinois
Chenqi Zhu: University of California

Review of Accounting Studies, 2024, vol. 29, issue 3, No 10, 2436 pages

Abstract: Abstract While the production of credit ratings has long been limited mainly to rating agencies (CRAs), recent years have seen the growing popularity of consensus credit ratings crowdsourced from banks (i.e., bank ratings). We provide the first comprehensive examination of the properties and informativeness of bank ratings relative to CRA ratings. We find that bank ratings often deviate from CRA ratings, with over 60% of firm-months having different bank and CRA ratings. These deviations contain useful information. Bank ratings improve out-of-sample prediction of defaults and CRA rating revisions and explain the cross-section of credit spreads. However, bank ratings do not improve out-of-sample prediction of credit excess returns, indicating that current prices incorporate bank rating information. Overall our findings suggest that bank ratings are a useful supplement to traditional credit ratings.

Keywords: Bank ratings; Credit agency ratings; Default; Credit spreads; Credit returns (search for similar items in EconPapers)
JEL-codes: G10 G20 M40 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-024-09835-7

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