An Empirical Analysis of Changes in Credit Rating Properties: Timeliness, Stability, and Accuracy

Abstract:     
In recent years, credit rating agencies have faced increased investor criticism and regulatory pressure for their ratings' lack of timeliness. This study investigates: (1) whether rating agencies respond to such criticism and pressure by improving the timeliness of credit ratings; (2) whether the improvement in rating timeliness is achieved at the expense of rating stability and/or accuracy. We find that rating agencies improve not only rating timeliness, but also rating stability and accuracy. Our findings support the criticism that, in the past, rating agencies enjoyed too much market power and consequently, they may have not availed themselves of the best rating methodologies/efforts possible. When their market power is threatened by the possibility of increased regulatory intervention and/or reputation concerns, rating agencies respond by improving the quality of their credit analysis.

Keywords: credit ratings, rating properties, regulatory pressure, investor criticism

JEL Classifications: G10, G29, G38, M41

Working Paper Series