Are credit ratings more rigorous for widely covered firms?

Samuel Bonsall, Jeremiah Ross Green, Karl A. Muller, III

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

We study how business press coverage can discipline credit rating agency actions. Because of their greater prominence and visibility to market participants, more widely covered firms can pose greater reputational costs for rating agencies. Consistent with rating agencies limiting such risk, we find that ratings for more widely covered firms are more timely and accurate, downgraded earlier and systematically lower in the year prior to default, and better predictors of default and non-default. We also find that the recent tightening of credit rating standards is largely explained by growing business press coverage of public debt issuers. Additionally, we find that credit rating agencies take explicit actions to improve their ratings by assigning better educated and more experienced analysts to widely covered firms. Moreover, we document that missed defaults of more visible firms create greater negative economic consequences for rating agencies, and that rating improvements following the financial crisis were greater for more visible firms.

Original languageEnglish (US)
Pages (from-to)61-94
Number of pages34
JournalAccounting Review
Volume93
Issue number6
DOIs
StatePublished - Nov 1 2018

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Credit rating
Rating
Rating agencies
Credit rating agencies
Analysts
Financial crisis
Economic consequences
Predictors
Costs
Public debt
Visibility

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

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Are credit ratings more rigorous for widely covered firms? / Bonsall, Samuel; Green, Jeremiah Ross; Muller, III, Karl A.

In: Accounting Review, Vol. 93, No. 6, 01.11.2018, p. 61-94.

Research output: Contribution to journalArticle

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