Ratings shopping is a well-documented cause for ratings inflation by credit rating agencies (CRAs). Its unobservability makes it difficult for market participants to undo it. In this paper, we exploit a unique regulation in India that requires CRAs to disclose ratings that were solicited but were eventually rejected by issuers. This regulation, which aims to enhance the transparency in the ratings process, allows us to empirically examine whether these disclosures influence ratings shopping and, consequently, ratings inflation. We find that the disclosure requirements result in an increase in the incidence of future downgrades and type 1 errors and a decrease in the occurrence of type 2 errors. These results are consistent with the view that the enhanced disclosure requirement did not reduce shopping and instead led to unintended consequences, such as an increase in implicit shopping, where issuers selectively engage lenient CRAs to obtain favorable ratings.

We examine the impact of corporate social responsibility (CSR) on the investment decisions of foreign institutional investors. Using institutional investor holdings data domiciled in emerging markets, we find a positive and economically significant impact of firm CSR performance on foreign institutional ownership. We further document that independent foreign investors are affected by firm CSR performance, while gray foreign investors do not consider firm CSR performance when forming portfolios. Cross-sectional tests indicate a more potent positive impact of CSR on foreign institutional investor holdings for firms domiciled in countries with stronger disclosure and better governance. Moreover, investors domiciled in countries with common law consider firm CSR performance when forming portfolios. The results are robust to exogenous shocks, instrumental variable tests, and alternate specifications.