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
September 25, 2013
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. More broadly, our results provide unique insights into the economic effects of government certification.
Number of Pages in PDF File: 47
Keywords: Credit Ratings, NRSRO, Capital Markets Regulation, Certification
JEL Classification: G21, G28, G38working papers series
Date posted: November 22, 2011 ; Last revised: September 26, 2013
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