Do Security Analysts Discipline Credit Rating Agencies?

Kingsley Fong, Harrison Hong, Marcin Kacperczyk, Jeffrey D. Kubik

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Credit ratings of corporations are biased, but the forces driving this bias are unclear. We argue it would be difficult for rating agencies to issue high grades for a firm's debt when there are a lot of objective equity analyst reports about the firm's earnings that are informative about its default. We find that an exogenous drop in analyst coverage leads to greater optimism-bias in ratings, especially for firms with little bond analyst coverage and those that are close to default. This coverage-induced shock leads to less informative ratings about future defaults and downgrades and more subsequent bond security mispricings.

Original languageEnglish (US)
Pages (from-to)815-848
Number of pages34
JournalReview of Corporate Finance Studies
Volume11
Issue number4
DOIs
StatePublished - Nov 1 2022

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Do Security Analysts Discipline Credit Rating Agencies?'. Together they form a unique fingerprint.

Cite this