Structural Shifts in Credit Rating Standards

74 Pages Posted: 13 Sep 2012

Multiple version iconThere are 3 versions of this paper

Date Written: September 8, 2012


I examine the time-series variation in corporate credit-rating standards from 1985 to 2007. A divergent pattern exists between investment-grade and speculative-grade rating standards from 1985 to 2002 as investment-grade standards tighten and speculative-grade loosen. In 2002, a structural shift occurs towards more stringent ratings. Holding characteristics constant, firms experience a drop of 1.5 notches in ratings due to tightened standards from 2002 to 2007. Credit-spread tests suggest that the variation in standards is not completely due to changes in the economic climate. Rating standards appear to a ffect credit-spreads. My evidence suggests that loose ratings lead to higher default rates.

Suggested Citation

Alp Paukowits, Aysun, Structural Shifts in Credit Rating Standards (September 8, 2012). Journal of Finance, Forthcoming, Available at SSRN:

Aysun Alp Paukowits (Contact Author)

University of Maryland ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

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