Is solicitation status related to rating conservatism and rating quality?

Research output: Contribution to journalArticlepeer-review

Abstract

This paper discusses the association between rating solicitation status and rating quality. Our model shows that if firms with a declining trend of performance are less likely to solicit ratings from credit rating agencies, these firms are more conservatively rated, as their self-selection behaviour is seen as a signal of high credit risk. Our empirical results support the predictions of the model proposed in this study and show that: first, when controlling for fundamental factors, unsolicited ratings are lower than solicited ones, and; second, the rating qualities of both types of ratings are not significantly different from each other.
Original languageEnglish
Article number101341
Number of pages27
JournalJournal of International Financial Markets, Institutions and Money
Volume72
Early online date20 Apr 2021
DOIs
Publication statusPublished - May 2021

Keywords

  • credit ratings
  • solicitation status
  • self-selection effect
  • conflict of interest

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