Credit Rating Inflation and Firms' Investments

• 成果类型: Article
• 署名作者: Goldstein, Itay; Huang, Chong
• 署名单位: University of Pennsylvania; University of California System; University of California Irvine
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12961
• 发表日期: 2020
• 页码: 2929-2972
• 关键词: Global games; COORDINATION; agencies; INFORMATION; RISK

摘要

We analyze credit rating effects on firm investments in a rational bond financing game that features a feedback loop. The credit rating agency (CRA) inflates the rating, providing a biased but informative signal to creditors. Creditors' response to the rating affects the firm's investment decision and thus its credit quality, which is reflected in the rating. The CRA might reduce ex ante economic efficiency, which results solely from its strategic effect: the CRA assigns more firms high ratings and allows them to gamble for resurrection. We derive empirical predictions on the determinants of rating standards and inflation and discuss policy implications.