Structured Debt Ratings: Evidence on Conflicts of Interest
39 Pages Posted: 19 Apr 2013 Last revised: 7 Dec 2018
Date Written: August 26, 2014
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: Suggested Citation