Reputations and Credit Ratings: Evidence from Commercial Mortgage-Backed Securities

56 Pages Posted: 29 Jan 2018 Last revised: 24 Sep 2018

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Swedish House of Finance

Bo Becker

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); ECGI

Date Written: January 2018

Abstract

How do changes in a rating agency's reputation affect the ratings market? We study the dynamics of credit ratings after Standard & Poor's (S&P) was shut out of a large segment of the commercial mortgage-backed securities (CMBS) ratings market following a procedural mistake. Exploiting the fact that most CMBS securities have ratings from multiple agencies, we show that S&P subsequently eased its standards compared to other raters. This coincided with a partial recovery in the number of deals S&P was hired to rate. Our findings are consistent with the view that an agency can regain market share after suffering reputational damage by issuing more optimistic ratings.

Keywords: commercial mortgage-backed securities, Competition, Credit ratings, information quality, reputation

JEL Classification: G20, G24, G28

Suggested Citation

Baghai, Ramin and Becker, Bo, Reputations and Credit Ratings: Evidence from Commercial Mortgage-Backed Securities (January 2018). CEPR Discussion Paper No. DP12648. Available at SSRN: https://ssrn.com/abstract=3112272

Ramin Baghai (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Bo Becker

Stockholm School of Economics ( email )

Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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