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Triple A default

Author

Listed:
  • Deng, Kaihua
  • Qiao, Guannan

Abstract

Credit ratings in China are highly skewed to the top. Despite heightened regulatory scrutiny and a gradual unwinding of implicit guarantee, we document a significant trend of rating inflation in recent years. We show that shopping has a large positive impact on upgrades, and highly rated firms are more likely to default during this period. The continued loosening of rating standards is discounted by the market which partially undoes the effect of indiscriminate rating practice. While the market anticipates most rating adjustments, it converges to a unique AA- boundary effect amidst the pool of increasingly higher ratings.

Suggested Citation

  • Deng, Kaihua & Qiao, Guannan, 2022. "Triple A default," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22000877
    DOI: 10.1016/j.pacfin.2022.101792
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit rating agency; Default; Rating inflation; Shopping;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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