Reputational Shocks and the Information Content of Credit Ratings

45 Pages Posted: 21 Dec 2010 Last revised: 11 Dec 2017

See all articles by Mascia Bedendo

Mascia Bedendo

Audencia Nantes School of Management

Lara Cathcart

Imperial College Business School

Lina El-Jahel

University of Auckland

Date Written: December 11, 2017


We investigate how shocks to the reputation of credit rating agencies and the subsequent introduction of stricter regulation affect investors' reaction to rating signals. We focus on three major episodes of reputational distress: The Enron/WorldCom scandals, the subprime crisis and the lawsuit against Standard & Poor's. We document a stronger response of stock investors to downgrades in the aftermath of reputational shocks, which is not, however, accompanied by an improvement in rating quality. Our results are consistent with a scenario where, following evidence of misrating, market investors conclude that ratings are generally overstated and infer greater negative information from downgrades. The effect is stronger for the investment-grade segment, where rating errors have a wider reputational impact. The introduction of new regulatory measures such the SOX Act, the CRA Reform Act and the Dodd-Frank Act, seems instead to improve rating quality and soften investors' response.

Keywords: Credit rating agencies, Rating announcements, Reputational shocks, Regulation

JEL Classification: G14, G24, G28

Suggested Citation

Bedendo, Mascia and Cathcart, Lara and El-Jahel, Lina, Reputational Shocks and the Information Content of Credit Ratings (December 11, 2017). Journal of Financial Stability, Forthcoming. Available at SSRN: or

Mascia Bedendo

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes, 44312

Lara Cathcart (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 (0) 20 7594 9126 (Phone)
+44 (0) 20 7594 9189 (Fax)

Lina El-Jahel

University of Auckland ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics