Conflicts of interest in subscriber-paid credit ratings

• 成果类型: Article
• 署名作者: Bonsall, Samuel B.; Gillette, Jacquelyn R.; Pundrich, Gabriel; So, Eric
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; Massachusetts Institute of Technology (MIT); State University System of Florida; University of Florida
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2023.101614
• 发表日期: 2024
• 关键词: BOND RATINGS; agencies; IMPACT; uncertainty; performance; moodys; matter; cost

摘要

We provide the first evidence of systematic bias among an emerging type of credit rating agency that relies on subscriptions from institutional clients as its primary source of revenue. Using data from Egan-Jones Ratings Company (EJR), a representative subscriberpaid rating agency, we show that EJR issues more optimistically biased credit ratings, less timely downgrades, and less accurate ratings for firms held by more EJR clients. Our evidence is consistent with EJR optimistically biasing its ratings to bolster subscriber revenue, which allows institutional clients to invest in riskier bonds with higher expected returns. Taken together, our findings suggest that the emergence of subscriber-paid rating agencies as an alternative to more traditional issuer-paid agencies is unlikely to resolve problems arising from conflicts of interest but rather alter the nature of these conflicts in the ratings process. (c) 2023 Elsevier B.V. All rights reserved.