Does Regulatory Certification Affect the Information Content of Credit Ratings?
American University - Department of Finance and Real Estate
Kimberly Rodgers Cornaggia
American University - Kogod School of Business
October 12, 2014
Management Science, Forthcoming
We exploit an investor-paid rating agency’s designation as a Nationally Recognized Statistical Rating Organization (NRSRO) to test whether this certification affects the agency’s information production. 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 more a function of rating agency compensation structure than the NRSRO certification by the SEC.
Number of Pages in PDF File: 47
Keywords: Credit Ratings, NRSRO, Capital Markets Regulation, Certification
JEL Classification: G21, G28, G38
Date posted: November 22, 2011 ; Last revised: November 12, 2014
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