Does Regulatory Certification Affect the Information Content of Credit Ratings?
Management Science, Forthcoming
47 Pages Posted: 22 Nov 2011 Last revised: 12 Nov 2014
Date Written: October 12, 2014
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: Suggested Citation