Does Regulatory Certification Affect the Information Content of Credit Ratings?

Management Science, Forthcoming

47 Pages Posted: 22 Nov 2011 Last revised: 12 Nov 2014

Valentina Bruno

American University - Department of Finance and Real Estate

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Date Written: October 12, 2014

Abstract

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.

Keywords: Credit Ratings, NRSRO, Capital Markets Regulation, Certification

JEL Classification: G21, G28, G38

Suggested Citation

Bruno, Valentina and Cornaggia, Jess and Cornaggia, Kimberly Rodgers, Does Regulatory Certification Affect the Information Content of Credit Ratings? (October 12, 2014). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1962840 or http://dx.doi.org/10.2139/ssrn.1962840

Valentina Giulia Bruno

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

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