Journal of Financial Stability Vol. 60 2022
Regulating rating agencies: A conservative behavioural change
Abstract
We investigate whether the European regulatory reforms of the credit rating industry have been successful in improving the quality of financial institutions’ credit ratings. A shift to more conservative rating behaviour rather than rating quality improvement is identified, which is attributable to increased regulatory scrutiny. This change leads to a reduction in rating inflation and an increase in the number of unwarranted downgrades and false rating warnings in the post-regulatory period. A significant decrease (increase) in the informativeness of rating downgrades (upgrades) is evident. Our findings contrast with prior evidence for US corporates where reputational effects dominated.
- DOI
- 10.1016/j.jfs.2022.100999
- Volume
- 60
- Pages
- 100999
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref