65 Pages Posted: 22 Nov 2010 Last revised: 30 Jan 2016
Date Written: January 16, 2016
I provide evidence of ratings shopping among corporate bonds. Firms are more likely to publish ratings from an agency that rates their bonds relatively favorably, and firms are also more likely to delay publication of any unfavorable ratings. This bias is strongest among junior and long-term bonds that are more complex to rate, and in times when the Baa--Aaa spread is high. I also show that firms strategically manage the number of ratings near a regulation-based threshold. Bonds with a shopping-biased rating are more likely to default, but investors account for this bias and demand higher yields for these bonds.
Keywords: Ratings shopping, credit rating agencies, corporate bonds, regulation
JEL Classification: G10, G14, G18, G20, G28, G30, G38
Suggested Citation: Suggested Citation
By Han Xia