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Rating shopping: evidence from the Chinese corporate debt security market

Author

Listed:
  • Zhang Chang
  • Xiaolu Hu
  • Zheyao Pan
  • Jing Shi

Abstract

We provide the first direct evidence on how issuers choose a credit rating agency (CRA). Using rating data from a leading CRA in China, we find that although in most cases the issuers publish more favourable ratings, in some cases issuers just select the ratings provided by CRAs they have business relationships with, especially when the more favourable ratings are above issuers’ prior ratings. Our further analysis suggests that this phenomenon is driven by the switching cost arising from the issuer being considered as a rating shopper when it obtains an upgrade from a CRA without a business relationship.

Suggested Citation

  • Zhang Chang & Xiaolu Hu & Zheyao Pan & Jing Shi, 2021. "Rating shopping: evidence from the Chinese corporate debt security market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2173-2200, April.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:s1:p:2173-2200
    DOI: 10.1111/acfi.12658
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    References listed on IDEAS

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    Cited by:

    1. Wenming Xu & Yan Liu, 2021. "Does reputational capital affect credit rating agencies?: empirical evidence from a natural experiment in China," European Journal of Law and Economics, Springer, vol. 51(3), pages 433-468, June.
    2. Xing Liu & Lingxuan Yang & Yu Liu, 2023. "Does reputation matter? Evidence on spatial competition in China's bond market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 1533-1570, April.
    3. Liu, Yan, 2023. "Essays on credit rating agencies in China," Other publications TiSEM b54b3315-1185-48b8-aaf8-8, Tilburg University, School of Economics and Management.

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