An empirical analysis of changes in credit rating properties: Timeliness, accuracy and volatility

Research output: Contribution to journalArticle

70 Citations (Scopus)

Abstract

In recent years, credit rating agencies have faced increased regulatory pressure and investor criticism for their ratings' lack of timeliness. This study investigates whether and how rating agencies respond to such pressure and criticism. We find that the rating agencies not only improve rating timeliness, but also increase rating accuracy and reduce rating volatility. Our findings support the criticism that, in the past, rating agencies did not avail themselves of the best rating methodologies/efforts possible. When their market power is threatened by the possibility of increased regulatory intervention and/or reputation concerns, rating agencies respond by improving their credit analysis.

Original languageEnglish (US)
Pages (from-to)108-130
Number of pages23
JournalJournal of Accounting and Economics
Volume47
Issue number1-2
DOIs
StatePublished - Mar 2009

Fingerprint

Credit rating
Timeliness
Rating
Empirical analysis
Rating agencies
Criticism
Credit
Methodology
Investors
Market power
Credit rating agencies

Keywords

  • Credit ratings
  • Investor criticism
  • Rating properties
  • Regulatory pressure

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

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AB - In recent years, credit rating agencies have faced increased regulatory pressure and investor criticism for their ratings' lack of timeliness. This study investigates whether and how rating agencies respond to such pressure and criticism. We find that the rating agencies not only improve rating timeliness, but also increase rating accuracy and reduce rating volatility. Our findings support the criticism that, in the past, rating agencies did not avail themselves of the best rating methodologies/efforts possible. When their market power is threatened by the possibility of increased regulatory intervention and/or reputation concerns, rating agencies respond by improving their credit analysis.

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