Do Rating Agencies Behave Defensively for Higher Risk Issuers?

• 成果类型: Article
• 署名作者: Bonsall, Samuel B.; Koharki, Kevin; Kraft, Pepa; Muller, Karl A., III; Sikochi, Anywhere
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; Purdue University System; Purdue University; Hautes Etudes Commerciales (HEC) Paris; Harvard University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4537
• 发表日期: 2023
• 页码: 4864-4887
• 关键词: Credit rating agencies; soft rating adjustments; default

摘要

We examine whether rating agencies act defensively toward issuers with a higher likelihood of default. We find that agencies' qualitative soft rating adjustments are more accurate as issuers' default risk grows, as evidenced by the adjustments leading to lower type I and type II error rates and better prediction of default and default recovery losses. We also find that soft adjustments' relevance increases with issuers' default risk, as evidenced by the adjustments being more predictive of initial offering yields and leading to a greater market reaction to rating changes. Further, we find that the rating agencies assign better educated and more experienced analysts to higher-risk issuers, providing evidence of one mechanism used by the rating agencies to generate more accurate and relevant soft adjustments. Overall, our study suggests that as the likelihood of issuer default grows, the threat of reputational harm from discovered rating failures increasingly mitigates the rating agencies' strategic behavior incentivized by the issuer-pay model.