Does it Matter Who Pays for Bond Ratings? Historical Evidence

45 Pages Posted: 29 Oct 2011 Last revised: 12 Mar 2012

See all articles by John (Xuefeng) Jiang

John (Xuefeng) Jiang

Michigan State University

Mary Harris Stanford

Texas Christian University - Department of Accounting

Yuan Xie

Fordham University

Multiple version iconThere are 2 versions of this paper

Date Written: Nov 3, 2011


We test whether Standard and Poor’s (S&P) assigns higher bond ratings after it switches from investor-pay to issuer-pay fees in 1974. Using Moody’s rating for the same bond as a benchmark, we find that when S&P charges investors and Moody’s charges issuers, S&P’s ratings are lower than Moody’s. Once S&P adopts issuer-pay, its ratings increase and no longer differ from Moody’s. More importantly, S&P only assigns higher ratings for bonds that are subject to greater conflicts of interest, measured by higher expected rating fees or lower credit quality. These findings suggest that the issuer-pay model leads to higher ratings.

Keywords: Credit Ratings, Investor Pay, Issuer Pay, Moody’s, S&P

JEL Classification: G18, G20, G28

Suggested Citation

Jiang, John (Xuefeng) and Stanford, Mary and Xie, Yuan, Does it Matter Who Pays for Bond Ratings? Historical Evidence (Nov 3, 2011). Journal of Financial Economics (JFE), Forthcoming, Fordham University School of Business Research Paper No. 1950748, Available at SSRN:

John (Xuefeng) Jiang (Contact Author)

Michigan State University ( email )

632 Bogue St Ste N505
Eli Broad College of Business
East Lansing, MI 48824
United States
517-432-3031 (Phone)
517-432-1101 (Fax)


Mary Stanford

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7483 (Phone)

Yuan Xie

Fordham University ( email )

441E Fordham Road
Bronx, NY 10458
United States


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