Do Global Credit Rating Agencies Think Globally? The Information Content of Firm Ratings around the World

Giovanni Ferri and Li-Gang Liu
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Li-Gang Liu: Asian Development Bank Institute, Tokyo

No 74, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: What is the information content of firm ratings? We disentangle the relative contribution to firms? ratings of sovereign risks and individual firms? performance indicators, reportedly employed by rating agencies. We reach three conclusions. First, sovereign risks? contribution is disproportionately greater in developing countries vis-ý-vis developed countries. Second, even controlling for the ?country ceiling effect??private ratings being constrained by their sovereign?s rating?firm ratings? information content is much smaller in developing countries. Third, cross-country indicators of information quality help explain but do not solve the puzzle entirely. Thus, global rating agencies do not (yet) think globally.

Date: 2002-08-29
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