Shopping the Rating: Evidence from Chinese Corporate Bond Market

30 Pages Posted: 27 Jul 2018

See all articles by Xiaolu Hu

Xiaolu Hu

RMIT University - School of Economics, Finance and Marketing

Zheyao Pan

Macquarie University

Date Written: July 27, 2018

Abstract

This paper examines whether “rating shopping” plays a role in rating inflation by employing a set of uniquely indicative rating data from a leading credit rating agency in China. In line with rating shopping, issuers selectively choose and publish the most favourable rating. This phenomenon is more significant for certain rating boundary. Some issuers choose not to shop the rating because of customer loyalty and regional market power of the rating agency they hire. Investors failed to ask for additional compensation on issuers who shopped the rating while shoppers experience more downgrades in the future and this causes greater market reaction.

Keywords: Credit rating agencies; Rating shopping; Corporate bond; Selective disclosure

JEL Classification: G12, G14, G24

Suggested Citation

Hu, Xiaolu and Pan, Zheyao, Shopping the Rating: Evidence from Chinese Corporate Bond Market (July 27, 2018). 31st Australasian Finance and Banking Conference 2018. Available at SSRN: https://ssrn.com/abstract=3221006 or http://dx.doi.org/10.2139/ssrn.3221006

Xiaolu Hu (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Zheyao Pan

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

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