The Dynamics of Credit Rating Disagreement

36 Pages Posted: 17 Nov 2012 Last revised: 26 Jul 2014

Lars Norden

Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV)

Viorel Roscovan

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: July 25, 2014

Abstract

The existence of multiple credit rating agencies (CRAs) and firms’ demand for multiple ratings suggests that there must be instances in which CRAs disagree. We investigate whether market-wide and firm-specific measures of uncertainty, private information, systematic risk and credit risk affect the dynamics of rating disagreement for multi-rated firms. We document that firm-specific uncertainty and private information of CRAs are the main drivers of rating disagreement. Our findings cast doubt on the value-added of multiple ratings per firm and hint at inconsistencies due to discretion, incentive problems, and strategic use of private information in the rating industry.

Keywords: Financial intermediation, Credit risk, Asymmetric information, Monitoring, CDS spreads

JEL Classification: G10, G24, D82

Suggested Citation

Norden, Lars and Roscovan, Viorel, The Dynamics of Credit Rating Disagreement (July 25, 2014). Available at SSRN: https://ssrn.com/abstract=2176656 or http://dx.doi.org/10.2139/ssrn.2176656

Lars Norden (Contact Author)

Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV) ( email )

Praia de Botafogo, 190
Rio de Janeiro, 22250-900
Brazil
+552137995759 (Phone)

Viorel Roscovan

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31104088836 (Phone)

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