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2020 | 13 | nr 4 | 173--186
Tytuł artykułu

Do Moody's and S&P Firm's Ratings Differ?

Warianty tytułu
Języki publikacji
EN
Abstrakty
EN
Credit rating agencies produce public statements about the financial health of companies, institutions, geographical entities and financial assets. The main available information about firms, useful for analyzing their long-term creditworthiness is their public accounts about the activities and results, besides the audit reports and their credit ratings. The agencies' results are mainly based on these data, but they claim to use additional qualitative information, with a methodology only partially disclosed. When different agencies produce long-term ratings about a particular firm, it should be expected that they were coincident, or at least similar, so that investors could use any of them to assess the potential financial risk. This is not the case, as the same companies can be rated differently by different agencies. This is the case with Standard and Poor's and Moody's: although their rating methods are not coincident, but their aim is to measure a similar latent variable - the firm's credit risk. These divergences could be caused, at least in part, by possible conflicts of interest or by a phenomenon called 'rating inflation'. A difference index is proposed to measure the differences in ratings when comparing several agencies' evaluations. The situation with the two main agencies is examined, using two large samples in a five-year period: clear discrepancies are observed, in some economic sectors, and similarities in others, with some evidence about getting higher ratings depending on a chosen agency. Also, a convergence of ratings during the period of 2014-2018 is observed, more prominent in some sectors, suggesting that additional regulation is needed to increase the market transparency. (original abstract)
Rocznik
Tom
13
Numer
Strony
173--186
Opis fizyczny
Twórcy
  • University of Córdoba, Córdoba, Spain
  • University of Córdoba, Córdoba, Spain
autor
  • VSB Technical University of Ostrava, Czech Republic
  • VSB Technical University of Ostrava, Czech Republic
Bibliografia
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  • Australian Securities & Investments Commission (2018). Surveillance of Credit Rating Agencies. Report 566. https://asic.gov.au/regulatory-resources/find-adocument/reports/rep-566-surveillance-of-credit-rating-agencies/
  • Bae, Kee-Hong, Jun-Kii Kang and Jin Wang (2015). Does increased competition affect credit ratings? A reexamination of the effect of Fitch's market share on credit ratings in the Corporate Bond Market. Journal of Financial and Quantitative Analysis, 50, 5, 1011-1035. https://doi.org/10.1017/S0022109015000472
  • Beatty, A., Gilette, J., Petacchi, R. and Weber, J. (2019). Do rating agencies benefit from providing higher ratings? Evidence from the consequences of municipal bond ratings recalibration. Journal of Accounting Research, 57, 2, 323-354. https://doi.org/10.1111/1475-679X.12263
  • Becker, B. and Milbourn, T. (2009). Reputation and competition: evidence from the credit rating industry, Harvard Business School, Working Paper No. 09-051.
  • Becker, B. and Milbourn, T. (2011). How Did Increased Competition Affect Credit Ratings? Journal of Financial Economics, 101, 493-514. https://doi.org/10.1016/j.jfineco.2011.03.012
  • Belas, J.; Bilan, Y.; Kijucnicov, A. and Vincurova, Z. (2015). Actual problems of business risk in SME segment. Case study from Slovakia. International Journal of Entrepreneurial Knowledge, 3, 1, 46-56. https://doi.org/10.1515/ijek-2015-0010
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  • Blaurock, U. (2007). Control and Responsibility of Credit Rating Agencies. Electronic Journal of Comparative Law, 11, 3, Dec. http://www.ejcl.org/113/article113-16.pdf.
  • Bonsall, S. (2014). The Impact of Issuer-Pay on Corporate Bond Rating Properties: Evidence from Moody's and S&P Initial Adoptions. Journal of Accounting and Economics, 57, 89-109. https://doi.org/10.1016/j.jacceco.2014.01.001
  • Bonsall, S., J. Green and K. Muller (2018). Are Credit Ratings more rigorous for widely covered firms?. The Accounting Review, 93, 6, 61-94. https://doi.org/10.2308/accr52044
  • Bowe, M. and Larik, W. (2014). Split Ratings and Differences in Corporate Credit Rating Policy between Moody's and Standard & Poor's. Financial Review, 49, 4, 713-734. https://doi.org/10.1111/fire.12054
  • Chodnicka-Jaworska, P. (2017). Banks' credit ratings inflation. Olsztyn Economic Journal, 1, 99-114.
  • Engelmann, B., Hayden, E. and Tasche, D. (2003). Testing rating accuracy. Risk, 16, 82-86. https://www.risk.net/risk-management/1528680/testing-rating-accuracy
  • Escrig-Olmedo, E., Fernández-Izquierdo, M.A., Ferrero-Ferrero, I., Rivera-Lirio, J.M. and Muñoz-Torres, M.J. (2019). Rating the Raters: Evaluating how ESG Rating Agencies Integrate Sustainability Principles. Sustainability, 11, 3, 915. https://doi.org/10.3390/su11030915
  • Frenkel, S. (2015). Repeated Interaction and Rating Inflation: A Model of Double Reputation. American Economic Journal: Microeconomics, 7(1), 250-280. https://www.jstor.org/stable/24467042
  • Ghosh, S. (2013). A Study of Differences in Standard & Poor's and Moody's Corporate Credit Ratings, 1-14. http://www.stern.nyu.edu/sites/default/files/assets/documents/con_041250.pdf
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  • Livingston, M., Wei, J. and Zhou, L. (2010). Moody's and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields. Journal of Money, Credit and Banking, 42, 7, 1267-1293. https://doi.org/10.1111/j.1538-4616.2010.00341.x
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  • Pichereau, L. (2016). Empirical study of credit rating agencies: do the financial characteristics of companies have an impact on the occurrence of split ratings? Thesis.
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  • Whalen, P. S. (2016). The Issuer-Pays Model: "Big Four" Auditors and Credit Rating Agencies Share a Common Conflict. University of Tennessee Honours Thesis Projects. https://trace.tennessee.edu/utk_chanhonoproj/1963
  • White, L. J. (2018). The Credit Rating Agencies and their role in the Financial System. In E. Rousseau, ed., Oxford Handbook on Institutions, International Economic Governance, and Market Regulation, Oxford University Press. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3192475
  • Xia, H. and G. Strobl (2012). The Issuer-Pays Rating Model and Ratings Inflation: evidence from Corporate Credit Ratings. SSRN Electronic Journal, February, 1-44. https://doi.org/10.2139/ssrn.2002186
  • Yakymova, L. and Kuz, V. (2019). The use of discriminant analysis in the assessment of municipal company's financial health. Economics & Sociology, 12, 2, 64-78. https://doi.org/10.14354/2071-789X.2019/12-2/4
Typ dokumentu
Bibliografia
Identyfikatory
Identyfikator YADDA
bwmeta1.element.ekon-element-000171608981

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