Does observability of ratings shopping improve ratings quality?

• 成果类型: Article
• 署名作者: Kallapur, Sanjay; Khizer, Abdul; Manchiraju, Hariom; Vijayaraghavan, Rajesh
• 署名单位: Indian School of Business (ISB); Arizona State University; Arizona State University-Tempe; University of British Columbia
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101; 1879-1980
• DOI: 10.1016/j.jacceco.2025.101800
• 发表日期: 2025-08
• 页码: 101800
• 关键词: credit ratings; bond; disclosure; agencies; MARKETS

摘要

Ratings shopping is a well-documented cause for ratings inflation by credit rating agencies (CRAs). Its unobservability makes it difficult for market participants to undo it. In this paper, we exploit a unique regulation in India that requires CRAs to disclose ratings that were solicited but were eventually rejected by issuers. This regulation, which aims to enhance the transparency in the ratings process, allows us to empirically examine whether these disclosures influence ratings shopping and, consequently, ratings inflation. We find that the disclosure requirements result in an increase in the incidence of future downgrades and type 1 errors and a decrease in the occurrence of type 2 errors. These results are consistent with the view that the enhanced disclosure requirement did not reduce shopping and instead led to unintended consequences, such as an increase in implicit shopping, where issuers selectively engage lenient CRAs to obtain favorable ratings.