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Do Rating Agencies Deserve Some Credit? Evidence from Transitory Shocks to Credit Risk
| Content Provider | Semantic Scholar |
|---|---|
| Author | Gredil, Oleg R. Kapadia, Nishad Lee, Jung Hoon |
| Copyright Year | 2019 |
| Abstract | We find that Credit Rating Agencies (CRAs) see through transitory shocks to credit risk that stem from transitory shocks to equity prices, while market-based measures of credit risk do not. For a given stock return, CRAs are significantly less likely to downgrade firms with transitory shocks than those with permanent shocks. However, credit default swap spreads and model-implied default probabilities do not distinguish between such shocks. These results explain why ratings are useful despite the availability of market-based estimates of credit risk: the ability to ignore transitory shocks is valuable because rating changes have real consequences for private contracts and access to capital. |
| File Format | PDF HTM / HTML |
| DOI | 10.2139/ssrn.2998242 |
| Alternate Webpage(s) | https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CICF2018&paper_id=678 |
| Alternate Webpage(s) | https://doi.org/10.2139/ssrn.2998242 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
