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Do managers withhold bad news from credit rating agencies?

Author

Listed:
  • Minkwan Ahn

    (The University of Hong Kong)

  • Samuel B. Bonsall

    (The Pennsylvania State University)

  • Andrew Buskirk

    (The Ohio State University)

Abstract

Research documents that managers, on average, withhold bad news and emphasize good news in their public disclosures. We ask whether the same is true in their private communications with credit rating agencies. We study how rating agencies anticipate and react to public information events as a function of their access to rated firms’ private information. We show that, in terms of ratings downgrades, rating agencies exhibit relatively more anticipation and less reaction to negative (compared to positive) public information events when they have more access to private information. Our results are strongest when firms are most optimistic in their public disclosures and are not due to rating agencies focusing their efforts on downside risk. Overall, we find consistent evidence that rated firms provide less optimistic information to rating agencies in their private communications and that this information is reflected in credit ratings.

Suggested Citation

  • Minkwan Ahn & Samuel B. Bonsall & Andrew Buskirk, 2019. "Do managers withhold bad news from credit rating agencies?," Review of Accounting Studies, Springer, vol. 24(3), pages 972-1021, September.
    • Handle: RePEc:spr:reaccs:v:24:y:2019:i:3:d:10.1007_s11142-019-09496-x
    DOI: 10.1007/s11142-019-09496-x
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    References listed on IDEAS

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    Cited by:

    1. Ryu, Doojin & Yang, Heejin & Yu, Jinyoung, 2022. "Insider trading and information asymmetry: Evidence from the Korea Exchange," Emerging Markets Review, Elsevier, vol. 51(PA).

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    More about this item

    Keywords

    Credit rating agencies; Asymmetric disclosure; Private information;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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