Download this Paper Open PDF in Browser

Buying on Certification: Customer Procurement and Credit Ratings

54 Pages Posted: 20 Dec 2014 Last revised: 14 Aug 2017

Kevin Green

University of Texas at Dallas

Xuan Tian

Tsinghua University - PBC School of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: August 9, 2017

Abstract

We examine how credit ratings affect firm stakeholders, in particular, customers in the supply chain. Public sector customers respond strongly to supplier rating changes: they increase purchases from upgraded firms, and reduce purchases from downgraded firms. This response, however, is not observed for private sector customers. This contrast is likely due to government agents’ desire to respond to ratings, a prevalent and verifiable certification, to signal that their decision-making is aligned with external assessment and to avoid reputational losses. We also find suggestive evidence that powerful politicians use ratings to award government contracts to suppliers located in states they represent.

Keywords: Government procurement, Customers, Supply-customer chain, rating certification, credit ratings

JEL Classification: G24, G28, E62

Suggested Citation

Green, Kevin and Tian, Xuan and Xia, Han, Buying on Certification: Customer Procurement and Credit Ratings (August 9, 2017). Kelley School of Business Research Paper No. 15-8. Available at SSRN: https://ssrn.com/abstract=2540251 or http://dx.doi.org/10.2139/ssrn.2540251

Kevin Green

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Han Xia (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Paper statistics

Downloads
246
Rank
103,818
Abstract Views
1,117