TY - JOUR

T1 - The impact of ESMA regulatory identifiers on the quality of ratings

AU - Klusak, Patrycja

AU - Alsakka, Rasha

AU - ap Gwilym, Owain

PY - 2019/11

Y1 - 2019/11

N2 - 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.

AB - 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.

KW - Rating agency reulation

KW - ESMA identifiers

KW - Quality of ratings

KW - Analyst location

U2 - 10.1016/j.irfa.2019.06.004

DO - 10.1016/j.irfa.2019.06.004

M3 - Article

VL - 66

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

SN - 1057-5219

M1 - 101365

ER -