Different Sides of the Same Story: Investors? And Issuers? Views of Rating Agencies

20 Pages Posted: 12 Nov 1997

See all articles by David Ellis

David Ellis

Babson College - Finance Division

Date Written: August 1997


Do investors and issuers agree on the meaning and role of bond ratings? To answer this question, the CFOs of investor-owned utilities and a random sample of institutional fixed-income investors were both surveyed about their views of the major rating agencies. While the two groups shared some opinions, there were a number of interesting differences. For example, while a large majority of investors only require one rating, usually from Moody's or S&P, most issuers say they obtain ratings from three or more agencies. The most likely reason for this dichotomy seems to be that issuers are keenly anxious to avoid the possibility of receiving an unsolicited rating, a practice of some rating agencies which has inspired considerable controversy. Investors feel that ratings tend to understate the riskiness of issuers, while issuers feel that their riskiness is overstated by ratings. Investors, unlike issuers, would like to see ratings updated immediately to reflect all relevant information, even if the change is likely to be reversed in the near future. The many differences disclosed by this survey suggest that ratings are not necessarily seen in a universally accepted light, and that the agencies need to pay attention to their clienteles by providing more timely updates and not generating unsolicited ratings.

JEL Classification: G10, G12, G20, G39

Suggested Citation

Ellis, David, Different Sides of the Same Story: Investors? And Issuers? Views of Rating Agencies (August 1997). Available at SSRN: https://ssrn.com/abstract=40680 or http://dx.doi.org/10.2139/ssrn.40680

David Ellis (Contact Author)

Babson College - Finance Division ( email )

Babson Park, MA 02457-0310
United States
617-239-6435 (Phone)
617-239-6465 (Fax)