External Credit Ratings and Bank Lending

42 Pages Posted: 20 Nov 2017 Last revised: 27 Nov 2018

See all articles by Christophe Cahn

Christophe Cahn

Banque de France - Direction des Entreprises

Mattia Girotti

Banque de France

Federica Salvadè

PSB Paris School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: November 17, 2018

Abstract

We study how external, not-for-profit, credit ratings influence banks' lending decisions and firms' real outcomes. We exploit a refinement in this rating information, which makes some firms receive a rating surprise. Although this surprise does not alter firms' risk weights in banks' required capital calculation, we find that affected firms enjoy greater and cheaper access to bank credit, start new bank relationships more easily, and invest more. Banks react to the rating surprise more strongly the less they already have information on the borrower. Overall, this suggests that banks use credit ratings for their informational content. Consequently, ratings help reducing the information gap between them.

Keywords: Credit Ratings, Banks, Lending Technology, Corporate Financing, Real Effects, Hold-up problem

JEL Classification: G21, G32

Suggested Citation

Cahn, Christophe and Girotti, Mattia and Salvadè, Federica, External Credit Ratings and Bank Lending (November 17, 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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