More Analysts, Better Ratings: Do Rating Agencies Invest Enough in Less Developed Countries?

Journal of Applied Economics, Vol. 7, No. 1, pp. 77-98, May 2004

Posted: 6 Sep 2004

Abstract

Rating agencies' track record is good in developed countries but poor in emerging economies. Why? Given the almost-monopolistic structure of the industry, we conjecture that agencies might underinvest in information gathering. We propose an indicator quantifying the agencies' effort to gather information and assess whether greater effort affects rating levels. We detect: (i) absolute underinvestment for non-OECD sovereigns (less effort in spite of greater opaqueness); (ii) relative underinvestment for non-OECD firms compared with OECD ones (though the former receive a larger effort, more intense effort boosts firm ratings in non-OECD countries while depressing them in OECD countries).

Keywords: Sovereign risk, credit ratings, rating agencies' effort

JEL Classification: G2, G3

Suggested Citation

Ferri, Giovanni, More Analysts, Better Ratings: Do Rating Agencies Invest Enough in Less Developed Countries?. Journal of Applied Economics, Vol. 7, No. 1, pp. 77-98, May 2004. Available at SSRN: https://ssrn.com/abstract=586208

Giovanni Ferri (Contact Author)

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

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