Does SEC Certification Affect the Information Content of Credit Ratings?
American University - Department of Finance and Real Estate
Indiana University Bloomington - Kelley School of Business
Kimberly Rodgers Cornaggia
American University - Kogod School of Business; Indiana University Bloomington - Department of Finance
April 22, 2013
We exploit the SEC certification of an investor-paid credit rating agency to disentangle competing effects on the information content of credit ratings due to rater compensation structure and the potential regulatory demand associated with certification. We use a certified issuer-paid agency as a benchmark and find robust evidence that the investor-paid agency’s ratings policy – both timelier and more symmetric with respect to positive and negative information – persists after it became certified for regulatory compliance. Our results suggest that ratings policy is primarily a function of compensation structure and provide a more nuanced understanding of the SEC certification.
Number of Pages in PDF File: 43
Keywords: Credit Ratings, NRSRO, Capital Markets Regulation, Certification
JEL Classification: G24, G28working papers series
Date posted: November 22, 2011 ; Last revised: April 26, 2013
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