Regulating rating agencies: A conservative behavioural change
Research output: Contribution to journal › Article › peer-review
Electronic versions
Documents
- JFS - Regulating Rating Agencies - 15-Nov-21
Accepted author manuscript, 739 KB, PDF document
Licence: CC BY-NC-ND Show licence
- 1-s2.0-S1572308922000274-main
Final published version, 1.28 MB, PDF document
Licence: CC BY Show licence
DOI
We investigate whether the European regulatory reforms of the credit rating industry have been successful in improving the quality of financial institutions’ credit ratings. A shift to more conservative rating behaviour rather than rating quality improvement is identified, which is attributable to increased regulatory scrutiny. This change leads to a reduction in rating inflation and an increase in the number of unwarranted downgrades and false rating warnings in the post-regulatory period. A significant decrease (increase) in the informativeness of rating downgrades (upgrades) is evident. Our findings contrast with prior evidence for US corporates where reputational effects dominated.
Keywords
- EU regulation of rating agencies, Rating quality, Rating conservatism, Disciplining hypothesis, Reputation hypothesis
| Original language | English |
|---|---|
| Article number | 100999 |
| Journal | Journal of Financial Stability |
| Volume | 60 |
| Early online date | 18 Mar 2022 |
| DOIs | |
| Publication status | Published - Jun 2022 |
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