Does Competition Affect Ratings Quality? Evidence from Canadian Corporate Bonds

54 Pages Posted: 10 Mar 2018 Last revised: 24 Sep 2018

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Hamdi Driss

Saint Mary's University

Gordon S. Roberts

York University - Schulich School of Business

Date Written: September 15, 2018

Abstract

This paper investigates the effect of competition among credit rating agencies on ratings quality. Specifically, we study how the ratings quality of a small local rating agency (DBRS) responds to competition from a large global rating agency (S&P) in rating Canadian corporate bonds. We find that DBRS's ratings become more favorable and less informative about the credit quality of Canadian bonds in response to increased competition from S&P. Our evidence supports the view that reputation concerns are not an effective disciplinary mechanism for small rating agencies facing competitive pressure from their larger peers.

Keywords: Credit Rating, Competition, Ratings Inflation, Canadian Rating Agency

JEL Classification: D43, G24, G28, L14, L15

Suggested Citation

Bae, Kee-Hong and Driss, Hamdi and Roberts, Gordon S., Does Competition Affect Ratings Quality? Evidence from Canadian Corporate Bonds (September 15, 2018). Available at SSRN: https://ssrn.com/abstract=3137107 or http://dx.doi.org/10.2139/ssrn.3137107

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Hamdi Driss

Saint Mary's University ( email )

923 Robie St.
Saint Mary's University - FISMS
Halifax, Nova Scotia B3H 3C3
Canada

HOME PAGE: http://Hamdi.Driss@smu.ca

Gordon S. Roberts

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)

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