Shopping the Rating: Evidence from Chinese Corporate Bond Market
30 Pages Posted: 27 Jul 2018
Date Written: July 27, 2018
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
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