Solicited Versus Unsolicited Ratings: The Role of Selection

42 Pages Posted: 17 Jan 2018

See all articles by Anna Gibert

Anna Gibert

European University Institute; German Institute for Economic Research (DIW Berlin)

Date Written: October 1, 2017

Abstract

This paper analyses the extent to which selection explains the observed discrepancy between solicited and unsolicited ratings. I propose a model of selection with truth telling rating agencies and borrowers with the ability to veto the revelation of the rating. The observed difference between the two categories of ratings in different markets is in line with the prediction of the model. In the financial sector, for example, selection of less creditworthy borrowers into unsolicited status makes unsolicited ratings grades lower on average than those solicited. In the government sector, on the other hand, there is a positive selection of borrowers into unsolicited ratings.

Keywords: Unsolicited ratings; Sovereign debt; Rating Agencies, Ancillary services

JEL Classification: G24; H63; G20

Suggested Citation

Gibert, Anna, Solicited Versus Unsolicited Ratings: The Role of Selection (October 1, 2017). BAFFI CAREFIN Centre Research Paper No. 2018-70, Available at SSRN: https://ssrn.com/abstract=3102833 or http://dx.doi.org/10.2139/ssrn.3102833

Anna Gibert (Contact Author)

European University Institute ( email )

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133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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