Download this Paper Open PDF in Browser

Credit Ratings and the Cost of Municipal Financing

Review of Financial Studies, forthcoming.

61 Pages Posted: 1 Aug 2013 Last revised: 8 Jul 2017

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: July 7, 2017

Abstract

A common belief held among researchers and policymakers is that regulatory reliance has inflated market demand for credit ratings, despite their decreasing informational value. Advances in information technology, coupled with reputation losses following the subprime crisis, renew the question of whether investors still rely on ratings to assess credit risk. Using Moody’s 2010 scale recalibration, which was unrelated to changing issuer fundamentals, we find that ratings still matter to investors and to issuers – apart from any regulatory implications. Our results commend improved disclosure to mitigate mechanistic reliance on ratings and inefficiencies due to rating standards that vary across asset classes.

Keywords: Credit Ratings, NRSRO, Blind Reliance, Municipal Debt, Information Production, Capital Markets Regulation

JEL Classification: G24, G28

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Credit Ratings and the Cost of Municipal Financing (July 7, 2017). Review of Financial Studies, forthcoming. . Available at SSRN: https://ssrn.com/abstract=2304373 or http://dx.doi.org/10.2139/ssrn.2304373

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Paper statistics

Downloads
624
Rank
34,254
Abstract Views
3,615