When do differences in credit rating methodologies matter? evidence from high information uncertainty borrowers

Samuel Bonsall, Kevin Koharki, Monica Neamtiu

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study investigates whether and when differences in the credit rating agencies' methodologies result in differences in rating properties. In particular, this study focuses on differences in information processing constraints between a rating agency that utilizes qualitative analysis and direct access to borrowers' management in its rating process (Standard &Poor's) compared to one that does not (Egan Jones Ratings Company) and how these differences affect rating quality. We find that as information uncertainty about borrowers increases, Egan Jones's rating accuracy, informativeness, and timeliness decrease relative to Standard &Poor's. Our findings suggest that Egan Jones's more restricted rating methodology can lead to limitations in information processing and, thus, reductions in Egan Jones's rating quality advantage for borrowers with greater information uncertainty.

Original languageEnglish (US)
Pages (from-to)53-79
Number of pages27
JournalAccounting Review
Volume92
Issue number4
DOIs
StatePublished - Jul 1 2017

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Methodology
Rating
Information uncertainty
Credit rating
Information processing
Credit rating agencies
Qualitative analysis
Timeliness
Rating agencies
Informativeness

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

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When do differences in credit rating methodologies matter? evidence from high information uncertainty borrowers. / Bonsall, Samuel; Koharki, Kevin; Neamtiu, Monica.

In: Accounting Review, Vol. 92, No. 4, 01.07.2017, p. 53-79.

Research output: Contribution to journalArticle

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