Quotation Ottonello, Giorgio, Jankowitsch, Rainer, Subrahmanyam, Marti. 2016. The Rules of the Rating Game: Market Perception of Corporate Ratings.




We investigate how the informativeness of rating events varies in different economic and regulatory environments, using the financial crisis and the Dodd-Frank Act as structural changes in the context of the US corporate bond market. Our analysis focuses on testing various hypotheses based on existing models of rating agency behavior. Informativeness is measured through the impact of credit rating changes on the pricing and liquidity of corporate bonds, taking differences in their characteristics into account. We find that the informativeness of rating changes is low when the economy is booming and regulation favors better-rated securities, especially when their cost of information acquisition is high. In economic downturns, the informativeness increases in combination with a high level of illiquidity. After the introduction of Dodd-Frank, informativeness of rating changes improves, but not for securities with high information costs and low underlying credit risk, indicating that the new regulatory framework has ambiguous effects.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title The Rules of the Rating Game: Market Perception of Corporate Ratings
Year 2016
URL https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2655684
JEL G01, G12, G24


Ottonello, Giorgio (Former researcher)
Jankowitsch, Rainer (Details)
Subrahmanyam, Marti (NYU Stern School of Business, United States/USA)
Institute for Financial Research IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5358 Corporate finances (Details)
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