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Changing credit rating standards in the UK: empirical evidence from 1999 to 2004

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  • Eleimon Gonis
  • Peter Taylor

Abstract

In recent years, the number of downgrades in UK corporate credit ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of UK companies has deteriorated. However, another explanation is that the credit rating agencies have become more stringent in the credit rating process. Summary statistics, a transition matrix and an ordered probit analysis of 69 UK credit rated firms for the years 1999-2004 suggests that the evidence supports both the explanations. In addition, the analysis shows that there is a clear pattern of UK credit ratings converging towards the investment-grade threshold category (BBB).

Suggested Citation

  • Eleimon Gonis & Peter Taylor, 2009. "Changing credit rating standards in the UK: empirical evidence from 1999 to 2004," Applied Financial Economics, Taylor & Francis Journals, vol. 19(3), pages 213-225.
    • Handle: RePEc:taf:apfiec:v:19:y:2009:i:3:p:213-225
    DOI: 10.1080/09603100802298018
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    References listed on IDEAS

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    1. Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 53-76, June.
    2. Stella Cheung, 1996. "Provincial Credit Rating in Canada: An Ordered Probit Analysis," Staff Working Papers 96-6, Bank of Canada.
    3. Lawrence J. White, 2001. "The Credit Rating Industry: An Industrial Organization Analysis," Working Papers 01-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
    5. C. H. Furfine & Jeffery D. Amato, 2003. "Are credit ratings procyclical?," BIS Working Papers 129, Bank for International Settlements.
    6. Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 53-76, June.
    7. Richard L. Johnson, 2003. "An examination of rating agencies' actions around the investment-grade boundary," Research Working Paper RWP 03-01, Federal Reserve Bank of Kansas City.
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    Cited by:

    1. Eleimon Gonis & Salima Paul & Jon Tucker, 2012. "Rating or no rating? That is the question: an empirical examination of UK companies," The European Journal of Finance, Taylor & Francis Journals, vol. 18(8), pages 709-735, September.

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