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

Samuel B. Bonsall, Kevin Koharki, Monica I Neamtiu

Research output: Contribution to journalArticle

4 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
Externally publishedYes

Fingerprint

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

Keywords

  • Credit rating agencies
  • Information uncertainty
  • Qualitative versus quantitative analysis

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

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

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

Research output: Contribution to journalArticle

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