Title: Can investor-paid credit rating agencies improve the information quality of issuer-paid rating agencies?
Abstract: This paper examines how the information quality of ratings from an issuer-paid rating agency (Standard and Poor's) responds to the entry of an investor-paid rating agency, the Egan-Jones Rating Company (EJR). By comparing S&P's ratings quality before and after EJR initiates coverage of each firm, I find a significant improvement in S&P's ratings quality following EJR's coverage initiation. S&P's ratings become more responsive to credit risk and its rating changes incorporate higher information content. These results differ from the existing literature documenting a deterioration in the incumbents' ratings quality following the entry of a third issuer-paid agency. I further show that the issuer-paid agency seems to improve the ratings quality because EJR's coverage has elevated its reputational concerns.
Publication Year: 2013
Publication Date: 2013-11-06
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 212
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