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1.
Using credit ratings as an uncertainty-reducing mechanism, we provide evidence of the beneficial impact of multiple credit ratings on reducing IPO underpricing and filing price revision. We find that the acquisition of multiple ratings in the pre-IPO period mitigates uncertainty more than the acquisition of a single rating. Multi-rated firms also have higher probabilities of survival than those with a single rating, whereas credit rating levels matter only for IPOs with more than one rating. The IPOs that are awarded the first rating on the borderline between investment and non-investment grades are more likely to seek an additional rating.  相似文献   

2.
Credit rating agencies assert that they rely on financial information provided by issuers and that they value rating stability as well as accuracy. In an environment where rating agencies depend on issuer-reported information and are reluctant to adjust ratings promptly, managers of issuing firms can utilize the discretion afforded by GAAP to obtain the most favorable credit ratings. Consistent with our expectations, we find that current accruals are unusually positive and high around initial credit ratings. The increase in abnormally high accruals leading up to the initial credit rating year is followed by a reversal in the subsequent years. Multivariate regression analyses suggest that accounting accruals, abnormal current accruals in particular, are significantly positively related to initial credit ratings after controlling for several issue- and issuer-related characteristics indicative of default risk. Our results are robust to additional tests that account for endogeneity between credit ratings and earnings management, adjust for performance, and account for firms issuing debt and equity simultaneously.  相似文献   

3.
We analyze credit watch and rating actions to better understand the role of credit watches in the credit rating process. We find that watch actions are more frequently prompted by specific, publicly known events than are rating actions. The likelihood that a watch action precedes a rating action varies systematically with proxies for investor demand for credit quality information and the adverse consequences of issuing a rating change prematurely. Credit watches occur more often in response to deterioration in credit quality, and issuers make concerted efforts to address the concerns that prompted down watches. Down watches are less likely than up watches to indicate the direction of the subsequent rating change. Watch announcements are associated with abnormal stock returns, indicating that credit watch actions are significant information events. Our results suggest that credit watches are informative and facilitate the stability of ratings by allowing firms to correct deficiencies and prevent downgrades.  相似文献   

4.

Research documents that managers, on average, withhold bad news and emphasize good news in their public disclosures. We ask whether the same is true in their private communications with credit rating agencies. We study how rating agencies anticipate and react to public information events as a function of their access to rated firms’ private information. We show that, in terms of ratings downgrades, rating agencies exhibit relatively more anticipation and less reaction to negative (compared to positive) public information events when they have more access to private information. Our results are strongest when firms are most optimistic in their public disclosures and are not due to rating agencies focusing their efforts on downside risk. Overall, we find consistent evidence that rated firms provide less optimistic information to rating agencies in their private communications and that this information is reflected in credit ratings.

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5.
Theory suggests that banks’ private information lets them hold up borrowers for higher interest rates. Since new information about a firm is revealed at the time of its bond IPO, it follows that banks will be forced to adjust their loan interest rates downwards after firms undertake their bond IPO. We test this hypothesis and find that firms are able to borrow at lower interest rates after their bond IPO. Importantly, firms that get their first credit rating at the time of their bond IPO benefit from larger interest rate savings than those that already had a credit rating. These findings provide support for the hypothesis that banks price their informational monopoly. We also find that it is costly for firms to enter the public bond market.  相似文献   

6.
Credit Ratings as Coordination Mechanisms   总被引:4,自引:0,他引:4  
In this article, we provide a novel rationale for credit ratings.The rationale that we propose is that credit ratings serve asa coordinating mechanism in situations where multiple equilibriacan obtain. We show that credit ratings provide a "focal point"for firms and their investors, and explore the vital, but previouslyoverlooked implicit contractual relationship between a creditrating agency (CRA) and a firm through its credit watch procedures.Credit ratings can help fix the desired equilibrium and as suchplay an economically meaningful role. Our model provides severalempirical predictions and insights regarding the expected priceimpact of rating changes.  相似文献   

7.
I examine the time‐series variation in corporate credit rating standards from 1985 to 2007. A divergent pattern exists between investment‐grade and speculative‐grade rating standards from 1985 to 2002 as investment‐grade standards tighten and speculative‐grade loosen. In 2002, a structural shift occurs toward more stringent ratings. Holding characteristics constant, firms experience a drop of 1.5 notches in ratings due to tightened standards from 2002 to 2007. Credit spread tests suggest that the variation in standards is not completely due to changes in the economic climate. Rating standards affect credit spreads. Loose ratings are associated with higher default rates.  相似文献   

8.
Credit rating provides essential information on a project's credit risk to both lenders and borrowers. On exploring over five million lending listings from a leading peer-to-peer (P2P) lending platform, a mismatch phenomenon was observed between credit rating and default probability of P2P listings across different credit rating groups, despite controlling for common credit-related characteristics. Further looking into the misevaluation of credit risk, it was found that this phenomenon was more pronounced when an unexpected intervention was likely to be applied in rating projects, such as listings with high credit ratings, large loan amounts, and less personal information. The study results question the credibility of related research that uses internal credit ratings, because this variable is likely to be manipulated by the platform.  相似文献   

9.
I compare issuer-paid ratings, represented by Standard & Poor's (S&P) to investor-paid ratings, represented by Egan-Jones Ratings Company (EJR), after the passage of the Dodd-Frank Act. My results show that S&P ratings are lower than EJR ratings in the post-Dodd-Frank period, especially for firms able to generate revenue to credit rating agencies (CRAs); i.e., firms with a large bond issuance, larger firms, and low-performing firms. Further, I find evidence of a greater accuracy of S&P ratings relative to EJR ratings in the post-Act period as shown by the lower probability of large credit rating changes and rating reversals. Finally, I show that issuer-paid ratings are more concerned about providing timely ratings in the post-Dodd-Frank period, thus protecting their reputation as leading information providers, than investor-paid ratings. My results are robust to a wide battery of robustness tests.  相似文献   

10.
We analyze the effect of business and financial market cycles on credit ratings using a sample of firms from the Russell 3000 index that are rated by Standard and Poor's over the period 1986–2012. We also examine investor reaction to credit rating actions in different stages of business and financial market cycles. We document that credit rating agencies are influenced by business and financial market cycles; they assign lower credit ratings during downturns of business and financial market cycles and higher ratings during upturns. Our study is the first to find strong evidence of pro‐cyclicality in credit ratings using a long window. We also document stronger investor reaction to negative credit rating actions during downturns. Our results confirm theoretical predictions and inform regulators.  相似文献   

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