Do managers withhold bad news from credit rating agencies? |
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Authors: | Ahn Minkwan Bonsall Samuel B Van Buskirk Andrew |
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Institution: | 1.School of Business, The University of Hong Kong, K.K. Leung Building, Pokfulam, Hong Kong ;2.Smeal College of Business, The Pennsylvania State University, 354 Business Building, University Park, PA, 16802, USA ;3.Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus, OH, 43210, USA ; |
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Abstract: | 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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