← Search

Information Sharing and Rating Manipulation

Mariassunta Giannetti1; José María Liberti2; Jason Sturgess3

1 Stockholm School of Economics, CEPR, and ECGI · 2 Driehaus College of Business, DePaul University and Kellogg School of Management, Northwestern University · 3 Queen Mary University of London

Review of Financial Studies 2017 open access

We show that banks manipulate borrowers’ credit ratings before sharing them with competing banks. Using a unique feature on the timing of information disclosure of a public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high-quality borrowers for which they have positive private information to protect their informational rents. Banks also upgrade low-quality borrowers with multiple lenders to avoid creditor runs. Our results suggest that credit ratings manipulation limits the positive effects of credit registries’ information disclosure on credit allocation.Received April 18, 2016; editorial decision April 1, 2017 by Editor Philip Strahan.

DOI
10.1093/rfs/hhx050
Volume
30 (9)
Pages
3269-3304
Language
en
Export
BibTeX
Sources
openalex crossref