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Split Ratings and Differences in Corporate Credit Rating Policy between Moody's and Standard & Poor's

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  • Michael Bowe
  • Waseem Larik

Abstract

This paper investigates split credit ratings awarded by Moody's and Standard & Poor's (S&P) to U.S. corporations. Bivariate probit model estimates, analyzing 5,238 firm-year observations from dual-rated S&P 500/400/600 index-constituent corporations, indicate firm-specific financial and governance characteristics predict split ratings. Large, profitable companies with enhanced interest coverage, a greater percentage of independent directors, and more institutional investment are less likely to receive splits. Moody's appears more conservative in its evaluations, assigning lower ratings to smaller, less profitable companies with low interest coverage. Moody's also associates external, independent constraints on managerial autonomy with a higher corporate credit standing relative to S&P.

Suggested Citation

  • Michael Bowe & Waseem Larik, 2014. "Split Ratings and Differences in Corporate Credit Rating Policy between Moody's and Standard & Poor's," The Financial Review, Eastern Finance Association, vol. 49(4), pages 713-734, November.
    • Handle: RePEc:bla:finrev:v:49:y:2014:i:4:p:713-734
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    File URL: http://hdl.handle.net/10.1111/fire.12054
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    Cited by:

    1. Lu, Yun & Ntim, Collins G. & Zhang, Qingjing & Li, Pingli, 2022. "Board of directors’ attributes and corporate outcomes: A systematic literature review and future research agenda," International Review of Financial Analysis, Elsevier, vol. 84(C).
    2. Vink, Dennis & Nawas, Mike & van Breemen, Vivian, 2021. "Security design and credit rating risk in the CLO market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    3. Vu, Huong & Alsakka, Rasha & ap Gwilym, Owain, 2022. "Does competition improve sovereign credit rating quality?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    4. Xianfeng Jiang & Frank Packer, 2017. "Credit ratings of domestic and global agencies: What drives the differences in China and how are they priced?," BIS Working Papers 648, Bank for International Settlements.
    5. 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).
    6. Helmut Wasserbacher & Martin Spindler, 2024. "Credit Ratings: Heterogeneous Effect on Capital Structure," Papers 2406.18936, arXiv.org.
    7. Abad, Pilar & Ferreras, Rodrigo & Robles, M.-Dolores, 2020. "Information opacity and corporate bond returns: The dynamics of split ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).

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