Information Sharing and Rating Manipulation

Review of Financial Studies, Forthcoming

Swedish House of Finance Research Paper No. 15-11

75 Pages Posted: 7 Jun 2015 Last revised: 2 Apr 2017

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Jose Maria Liberti

Northwestern University - Kellogg School of Management; DePaul University

Jason Sturgess

Queen Mary University of London

Multiple version iconThere are 2 versions of this paper

Date Written: January 16, 2017

Abstract

We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of a public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers with multiple lenders to avoid creditor runs. Our results suggest that manipulation of credit ratings limits the positive effects of credit registries’ information disclosure on credit allocation.

Keywords: rating, informational rents, information sharing

JEL Classification: G21

Suggested Citation

Giannetti, Mariassunta and Liberti, Jose Maria and Sturgess, Jason, Information Sharing and Rating Manipulation (January 16, 2017). Review of Financial Studies, Forthcoming ; Swedish House of Finance Research Paper No. 15-11. Available at SSRN: https://ssrn.com/abstract=2615225 or http://dx.doi.org/10.2139/ssrn.2615225

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
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European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
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HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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Jose Maria Liberti

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Jacobs 4203
Evanston, IL 60208
United States
(847) 491-5861 (Phone)
(847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/liberti_jose.aspx

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
(312) 362-8739 (Phone)
(312) 362-6566 (Fax)

Jason Sturgess

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

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