Does Regulatory Certification Affect the Information Content of Credit Ratings?
Valentina Bruno, Jess Cornaggia, Kimberly J. Cornaggia
Management Science · 2016 · Volume 62 · Issue 6
Abstract
We exploit an investor-paid rating agency’s designation as a Nationally Recognized Statistical Rating Organization (NRSRO) to test whether this certification affects the agency’s information production. We use a certified issuer-paid agency as a benchmark and find robust evidence that the investor-paid agency’s ratings policy—both timelier and more symmetric with respect to positive and negative information—persists after it became certified for regulatory compliance. Our results suggest that ratings policy is more a function of rating agency compensation structure than the NRSRO certification by the U.S. Securities and Exchange Commission. This paper was accepted by Gustavo Manso, finance.
Keywords
credit ratings, NRSRO, capital markets regulation, certification
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