Credit Ratings of Domestic and Global Agencies: What Drives the Differences in China and How are They Priced?

36 Pages Posted: 3 Jul 2017

See all articles by Xianfeng Jiang

Xianfeng Jiang

The People's Bank of China (PBC) - Institute of Financial Research

Frank Packer

Bank for International Settlements (BIS)

Date Written: June 2017

Abstract

The market for the credit ratings of Chinese firms is large and growing. We focus our analysis on the firms that have ratings from both domestic and global agencies. Despite the similar symbols, the rating scales of the domestic and global agencies differ: domestic agencies rate firms that are jointly rated higher than global agencies by 6-7 notches on average. Focusing on the rank order of domestic and global credit ratings, we test for differences in the determinants of ratings across global and domestic agencies. We find asset size is weighed more heavily as a positive factor by domestic agencies, and leverage is weighed more heavily as a negative factor by global agencies. Profitability and state-ownership are weighed more positively by global rating agencies. The influence of the variables is generally stable across a variety of robustness checks. In spite of these differences, both domestic and global ratings appear to be priced into the market values of rated bonds.

Keywords: Credit ratings, split ratings, state-owned firms, Chinese bond markets

JEL Classification: G12, G18, G23, G24

Suggested Citation

Jiang, Xianfeng and Packer, Frank, Credit Ratings of Domestic and Global Agencies: What Drives the Differences in China and How are They Priced? (June 2017). BIS Working Paper No. 648. Available at SSRN: https://ssrn.com/abstract=2996280

Xianfeng Jiang

The People's Bank of China (PBC) - Institute of Financial Research ( email )

China

Frank Packer (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland
4161 280 8449 (Phone)

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