Do Bond Issuers Shop for Favorable Credit Ratings?
University of Illinois at Urbana-Champaign
September 9, 2014
This paper provides evidence of ratings shopping among corporate bonds. Firms are more likely to solicit ratings from an agency that is expected to rate relatively favorably. This bias is strongest among bonds that are complex to rate, and in times when the Baa-Aaa spread is high. Furthermore, firms often delay the publication of unfavorable ratings, and strategically manage the number of ratings near a regulation-based threshold. Bonds with a shopped rating are more likely to default, but investors account for this bias and demand higher yields for these bonds.
Number of Pages in PDF File: 61
Keywords: Ratings shopping, credit rating agencies, corporate bonds, regulation
JEL Classification: G10, G14, G18, G20, G28, G30, G38working papers series
Date posted: November 22, 2010 ; Last revised: September 30, 2014
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