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Is solicitation status related to rating conservatism and rating quality?

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  • Zhao, Sheng
  • Moreira, Fernando
  • Wang, Tong

Abstract

This paper discusses the association between rating solicitation status and rating quality. Our model shows that if firms with a declining trend of performance are less likely to solicit ratings from credit rating agencies, these firms are more conservatively rated, as their self-selection behaviour is seen as a signal of high credit risk. Our empirical results support the predictions of the model proposed in this study and show that: first, when controlling for fundamental factors, unsolicited ratings are lower than solicited ones, and; second, the rating qualities of both types of ratings are not significantly different from each other.

Suggested Citation

  • Zhao, Sheng & Moreira, Fernando & Wang, Tong, 2021. "Is solicitation status related to rating conservatism and rating quality?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:intfin:v:72:y:2021:i:c:s1042443121000603
    DOI: 10.1016/j.intfin.2021.101341
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    Cited by:

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    More about this item

    Keywords

    Credit ratings; Solicitation status; Self-selection effect; Conflict of interest;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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