Structured Debt Ratings: Evidence on Conflicts of Interest

39 Pages Posted: 19 Apr 2013 Last revised: 3 Sep 2014

Matthias Efing

HEC Paris - Finance Department; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2014

Abstract

We test if issuers of asset- and mortgage-backed securities receive rating favors from agencies with which they maintain strong business relationships. Controlling for issuer fixed effects and a large set of credit risk determinants, we show that agencies publish better ratings for those issuers that provide them with more bilateral securitization business. Such rating favors are larger for very complex structured debt deals and for deals issued during the credit boom period. Our analysis is based on a new deal-level rating statistic that accounts for the full distribution of tranche ratings below the AAA cut-off point of a structured debt deal.

Keywords: Credit Ratings, Ratings Inflation, Conflicts of Interest, Structured Debt

JEL Classification: G01, G10, G24

Suggested Citation

Efing, Matthias and Hau, Harald, Structured Debt Ratings: Evidence on Conflicts of Interest (August 26, 2014). Swiss Finance Institute Research Paper No. 13-21. Available at SSRN: https://ssrn.com/abstract=2253970 or http://dx.doi.org/10.2139/ssrn.2253970

Matthias Efing (Contact Author)

HEC Paris - Finance Department ( email )

France
(++33)695646755 (Phone)

HOME PAGE: http://matthiasefing.com/

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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