Coarse Credit Ratings, Corporate Financing, and Real Outcomes

41 Pages Posted: 20 Nov 2017 Last revised: 15 Jun 2018

Christophe Cahn

Banque de France - Direction des Entreprises

Mattia Girotti

Banque de France

Federica Salvadè

PSB Paris School of Business

Date Written: June 6, 2018

Abstract

We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms upgraded relative to others within each rating class. We find that upgraded firms enjoy greater and cheaper access to bank credit. Such effects are stronger the higher the cost for banks to screen the borrowing firms. Thanks to the greater access to credit, upgraded firms reduce their reliance on equity, increase their investment and hiring, and are less likely to fail. Overall, our findings uncover a new bank lending technology whereby banks rely on indicators based on hard and soft information produced by a third-party entity.

Keywords: Credit Ratings, Banks, Lending Technology, Corporate Financing, Real Effects

JEL Classification: G32, G33, G21, D82

Suggested Citation

Cahn, Christophe and Girotti, Mattia and Salvadè, Federica, Coarse Credit Ratings, Corporate Financing, and Real Outcomes (June 6, 2018). Available at SSRN: https://ssrn.com/abstract=3072891 or http://dx.doi.org/10.2139/ssrn.3072891

Christophe Cahn

Banque de France - Direction des Entreprises ( email )

39 rue Croix des Petits Champs
Paris Cedex 01 75049
France

Mattia Girotti (Contact Author)

Banque de France ( email )

Paris
France

Federica Salvadè

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

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