Does reputation matter? Evidence on spatial competition in China's bond market

This study investigates the effect of market competition on the reputational concerns of credit rating agencies (CRAs) in the Chinese bond market. We find credit ratings increase when the market share distance between an incumbent CRA and its closest peer competitor decreases. This spatial competition effect only exists at the provincial level. We also find the market competition deteriorates the ability of ratings to predict future bond defaults, while the correlation between credit ratings and market-implied credit spreads is unaffected. Our findings suggest that because of the market inefficiency in emerging economies, CRAs privilege current profits over reputational concerns.     

金融中介机构竞争的市场反应--来自信用评级机构的证据北大核心

目前已有研究认为金融中介机构竞争会带来市场效率的提高,本文利用2012-2017年债券市场的微观数据研究“发行人付费”模式评级机构之间的竞争对评级结果的影响。研究发现,评级机构竞争会导致评级结果膨胀与评级质量下降。进一步研究发现,当评级竞争加剧时,“发行人付费”模式的评级机构会对有较多业务联系的企业放松评级标准,给予更高信用评级。我们的研究也发现评级机构的外资背景、承销商的良好声誉和媒体关注均有助于减小“发行人付费”模式下评级机构竞争的负面影响。同时,债券市场评级竞争还存在对股票市场的溢出效应,评级竞争导致的评级质量下降也降低了股票市场的信息效率。这说明,“发行人付费”模式下的评级机构竞争会降低资本市场的信息效率,“投资者付费”模式的推广和评级行业的对外开放有助于改善国内评级行业的评级质量。本文的研究也为国内债券市场进一步发挥双评级、多评级以及不同模式评级的交叉验证作用提供了一定证据支持。     

Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?

Credit rating agencies (CRAs) are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products. In response to this accusation, CRAs argue that such an attitude would be too dangerous for them, since their reputation is at stake. The objective of this article is to examine the validity of this argument within a formal model: Are reputation concerns sufficient to discipline rating agencies?We show that the reputation argument only works when a sufficiency large fraction of the CRA income comes from other sources than rating complex products. By contrast when rating complex products becomes a major source of income for the CRA, we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough.We provide some empirical support for this prediction, by showing that ceteris paribus, the proportion of subprime residential mortgage-backed securities (RMBS) that were rated AAA by the three main CRAs indeed increased over the last eight years.We analyze the policy implications of our findings and advocate for a new business model of CRAs that we call the platform-pays model.     

私有信息、评级偏差和中国评级机构的市场声誉

考虑到评级机构拥有市场声誉的本质在于其可以通过扭曲评级从而对市场产生影响,本文分两步研究中国发行人付费评级机构的市场声誉:第一步,将信用评级对各种基本面因素进行回归,并以实际评级与回归预测值的差值作为评级偏差的量度。与既有文献相比,本文的重要改进是在基本面因素中引入了发债企业与各评级机构(分支机构)最短距离的均值和方差,这能较好地控制因发债企业私有信息可能造成的选择偏误。第二步,考察评级偏差和机构特征如何影响企业的发债成本。研究表明,中国评级机构作为一个整体具有显著的市场声誉,但各评级机构之间存在很大的差异性。最后,考虑到评级机构与发债企业在选址上可能会有集聚效应,我们基于高铁开通事件进行双重差分检验,研究表明本文结论是稳健的。     

Ratings quality over the business cycle

Credit rating agencies (CRAs) have long held that reputational concerns discipline their behavior. The value of reputation, however, depends on economic fundamentals that vary over the business cycle. In a model of ratings incorporating endogenous reputation and a market environment that varies, we find that ratings quality is countercyclical. Specifically, a CRA is more likely to issue less-accurate ratings when fee-income is high, competition in the labor market for analysts is tough, and securities' default probabilities are low. Persistence in economic conditions can diminish our results, while mean reversion exacerbates them. The presence of naive investors reduces overall quality, but quality remains countercyclical. Finally, we demonstrate that competition among CRAs yields similar results.     

Information effect of entry into credit ratings market: The case of insurers' ratings

The paper analyzes the effect of competition between credit rating agencies (CRAs) on the information content of ratings. We show that a monopolistic CRA pools sellers into multiple rating classes and has partial market coverage. This provides an opportunity for market entry. The entrant designs a rating scale distinct from that of the incumbent. It targets higher-than-average companies in each rating grade of the incumbent's rating scale and employs more stringent rating standards. We use Standard and Poor's (S&P) entry into the market for insurance ratings previously covered by a monopolist, A.M. Best, to empirically test the impact of entry on the information content of ratings. The empirical analysis reveals that S&P required higher standards to assign a rating similar to the one assigned by A.M. Best and that higher-than-average quality insurers in each rating category of A.M. Best chose to receive a second rating from S&P.     

开放条件下信用评级市场发展及监管问题研究

自2017年起,我国信用评级市场开始加速对外开放,我国信用评级市场间机构竞争格局必将产生新变化,信用评级水平必将得到有效提升。在开放条件下,我国信用评级监管可以借鉴美国经验,重点关注监管法治建设层级不足、金融安全风险、利益冲突等问题。因此,应加快各地《信用评级业管理暂行办法》等配套制度建设;完善市场退出机制,加强信用评级机构整合管理;强化声誉约束机制建设,发挥市场选择作用;构建多样化付费模式,缓解利益冲突问题;推动信用评级监管跨境合作,强化评级流程合规管理。     

信用评级变动能反映企业真实财务信息吗?——基于财务重述的视角

本文以2007-2018年拥有主体信用评级的A股上市公司为研究对象,利用企业财务错报在未来被重述这一场景,检验主体信用评级变动能否反映企业真实财务信息。研究发现,评级机构在发债企业财务错报年显著下调了主体信用评级,而在重述公告发布年没有上述现象,这表明主体信用评级下调反映了企业的真实财务信息。在控制内生性影响后,结论仍然成立。进一步研究发现,发债企业当期财务错报涉及盈余时,主体信用评级被下调的幅度更大,说明评级机构更加关注与盈余相关的财务信息。机制分析表明,评级机构维护自身声誉是主体信用评级变动能够反映企业真实财务信息的主要机制。此外,主体信用评级被下调还导致了资本市场投资者的负面反应。本文的研究结果为主体信用评级变动反映企业真实财务信息提供了直接的证据支持,揭示了主体信用评级的信息含量,也对理解中国情境下评级机构调整主体信用评级的行为动机提供参考。     

Differences of opinion in sovereign credit signals during the European crisis

Motivated by the European debt crisis and the new European Union regulatory regime for the credit rating industry, we analyse differences of opinion in sovereign credit signals and their influence on European stock markets. Rating disagreements have a significant connection with subsequent negative credit actions by each agency. However, links among Moody’s/Fitch actions and their rating disagreements with other agencies have weakened in the post-regulation period. We also find that only S&P’s negative credit signals affect the own-country stock market and spill over to other European markets, but this is concentrated in the pre-regulation period. Stronger stock market reactions occur when S&P has already assigned a lower rating than Moody’s/Fitch prior to taking a further negative action.     

The information content of three credit ratings: the case of European residential mortgage-backed securities

We assess the information content of three credit ratings for tranches of newly issued European residential mortgage-backed securities. We find that tranches rated by three credit rating agencies where the rating by Standard & Poor's (S&P's) Ratings Service or Fitch is inferior to Moody's lead to higher funding costs and reflects what we refer to as rating risk. Our results suggest that market participants do not view credit ratings by Fitch and S&P's as redundant despite the fact that both employ the same rating approach.     

Financial Reporting and Credit Ratings: On the Effects of Competition in the Rating Industry and Rating Agencies' Gatekeeper Role

This paper studies firms' financial reporting incentives in the presence of strategic credit rating agencies and how these incentives are affected by the level of competition in the rating industry and by rating agencies' role as gatekeepers to debt markets. We develop a model featuring an entrepreneur who seeks project financing from a perfectly competitive debt market. After publicly disclosing a financial report, the entrepreneur can purchase credit ratings from rating agencies that strategically choose their rating fees and rating inflation. We derive the following core results: (1) More rating industry competition leads to stronger corporate misreporting incentives if ratings are sufficiently precise or if rating agencies assume a gatekeeper role. Under imperfect rating industry competition, (2) agencies' gatekeeper role primarily weakens firms' misreporting incentives, which then influences rating agencies' strategies, and (3) firms' misreporting and rating agencies' rating inflation can be strategic complements when agencies assume a gatekeeper role. (4) Regulatory initiatives aimed at increasing rating industry competition or at weakening rating agencies' gatekeeper role improve investment efficiency as long as corporate misreporting incentives are not significantly strengthened.     

Quantitative easing and credit rating agencies

This paper investigates the behaviour of credit rating agencies (CRAs) using a natural experiment in monetary policy. We exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Our findings contribute to better assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy.     

Ratings Competition in the CMBS Market

We consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage‐backed securities (CMBS) using data from 2002 to 2007. We characterize competition using Fitch's aggregate share of CMBS ratings and a measure of Fitch's deal‐specific market share constructed as the probability of Fitch being hired for a specific transaction. Controlling for deal characteristics, we find that subordination levels were lower when Fitch's aggregate and deal‐specific market shares were higher, which suggests that ratings competition yielded less stringent ratings when Fitch was a more significant competitor, although this effect dissipates when Fitch's market shares were high.     

信用评级行业竞争和规制:美国的经验和启示

美国信用评级行业高度集中,标普、穆迪是评级市场的统治者。美国证券交易委员会对国家认可的统计评级机构(NRSROs)的指定以及基于监管目的广泛使用NRSROs概念导致评级行业的准入壁垒。声誉资本、网络效应以及评级透明也是影响信用评级行业竞争状况的因素。为了增进评级行业竞争,美国已经加强对信用评级机构的法律监管,并正在酝酿新一轮的竞争规制措施和改革方案。美国的经验和做法对于我国刚刚起步的信用评级行业的发展具有借鉴意义。     

The Credit Ratings Game

The collapse of AAA‐rated structured finance products in 2007 to 2008 has brought renewed attention to conflicts of interest in credit rating agencies (CRAs). We model competition among CRAs with three sources of conflicts: (1) CRAs conflict of understating risk to attract business, (2) issuers' ability to purchase only the most favorable ratings, and (3) the trusting nature of some investor clienteles. These conflicts create two distortions. First, competition can reduce efficiency, as it facilitates ratings shopping. Second, ratings are more likely to be inflated during booms and when investors are more trusting. We also discuss efficiency‐enhancing regulatory interventions.     

Reputation,Information, and Herding in Credit Ratings: Evidence from CMBS

The Journal of Real Estate Finance and Economics - We find strong evidence of herding behavior among credit rating agencies (CRAs) in the CMBS market. CRAs are more likely to change their rating if...     

Do Rating Agencies Benefit from Providing Higher Ratings? Evidence from the Consequences of Municipal Bond Ratings Recalibration

We ask whether credit rating agencies receive higher fees and gain greater market share when they provide more favorable ratings. To investigate this question, we use the 2010 rating scale recalibration by Moody's and Fitch, which increased ratings absent any underlying change in issuer credit quality. Consistent with prior research, we find that the recalibration allowed the clients of Moody's and Fitch to receive better ratings and lower yields. We add to this evidence by showing that the recalibration also led to larger fees and to increases in the market shares of Moody's and Fitch. These results are consistent with critics’ concerns about the effects of the issuer‐pay model on the credit ratings market.     

The sovereign-bank rating channel and rating agencies' downgrades during the European debt crisis

We investigate the rating channel for the transmission of changes in sovereign risk to the banking sector, analysing data from Moody's, S&P and Fitch before and during the European debt crisis. Sovereign rating downgrades and negative watch signals have strong effects on bank rating downgrades in the crisis period. The impact is stronger for multiple-notch sovereign rating downgrades, and more pronounced in PIIGS countries. Secondly, we investigate rating agencies' competition in the banking sector during the same periods, finding significant differences in rating policies across the agencies. S&P credit actions tend to be the more independent ones, while Moody's appears to be more cautious, although it is by far the most likely to assign multiple-notch downgrades. In the pre-crisis period, we find no evidence that bank rating actions are linked to sovereign rating signals (nor vice versa) nor to prior bank rating changes by a competing agency.     

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth,Not Scapegoats

The undergoing financial turbulence has raised significant concerns over the role that credit rating agencies (CRAs) played in the inception, magnification and expansion of the crisis. In response, the EU legislature has adopted Regulation 1060/2009, which, for the first time, set out a legally binding pan‐European authorization regime for CRAs, which issue ratings that have been used by EU‐based financial institutions. As the turmoil turned into an unprecedented Eurozone debt crisis, EU politicians have been calling for tighter regulation of the credit rating industry. Drawing on the relevant empirical and theoretical research and building upon a comparative study of the corresponding US framework, the paper discusses critically the principles underlying EU Regulation 1060/2009 and the most recent suggestions for its reform. The paper argues that although, overall, the EU Regulation seems to be a well‐balanced instrument in the sense that it introduces the essential checks upon CRAs’ behavior while avoiding excessive regulatory intervention, more fine‐tuning is needed in certain fields, including, rating shopping, financial ties with rated entities, abuse of inside information, transparency and CRAs’ accountability.     

加强我国信用评级体系建设增强上海国际金融中心竞争力

该文分析了我国信用评级市场运行现状,指出评级市场尚处于发展初级阶段,存在市场结构单一、不正当竞争凸显、可持续发展能力弱等问题。为从制度层面有效提高我国评级行业竞争力,完善体系建设,文章提出以机构创新促发展——成立全国性的、公共征信的再信用评级公司,规范引导我国信用评级市场的发展,促进市场公信力建设,提高信用评级体系综合实力,满足全社会多层次、多样化、专业化的信用服务需求,进而增强我国金融市场竞争力。