The impact of ESMA regulatory identifiers on the quality of ratings

Research output: Contribution to journalArticlepeer-review

Electronic versions

Documents

DOI

This paper investigates the impact of the introduction of ESMA credit rating identifiers on the quality of ratings. These identifiers form part of the disclosure requirements placed upon credit rating agencies (CRAs) since 2012 under a new EU regulatory regime and have not featured in any prior empirical literature. Rating informativeness is gauged from bond market data. Using a rich dataset of sovereign rating actions by the three major CRAs for 70 countries during the period 2006–2016, we find that the ESMA requirement for identifiers yields varying outcomes across downgrades and upgrades. The rating quality associated with downgrades by Moody's improves, whereas upgrades by S&P, Moody's and Fitch are of lower quality. These results are consistent with greater conservatism in rating policies after the regulatory reforms. ESMA's additional focus on analyst location does not reveal any consistent difference in the quality of ratings.

Keywords

  • Rating agency reulation, ESMA identifiers, Quality of ratings, Analyst location
Original languageEnglish
Article number101365
JournalInternational Review of Financial Analysis
Volume66
Early online date12 Jun 2019
DOIs
Publication statusPublished - Nov 2019

Total downloads

No data available
View graph of relations