Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?

Roy, Patrick Van

doi:10.2139/ssrn.802085

Cited by 137 publications

(8 citation statements)

References 20 publications

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“…Therefore, we use an endogenous switching model, which captures these latter effects. Von Roy (2006) also conducted a study of solicited and unsolicited bank ratings using an endogenous switching regression model. We expect that the rating agencies may evaluate the financial characteristics of the same bank differently if the bank's solicitation status changes.…”

Section: Methodsmentioning

confidence: 99%

Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries

Poon¹,

Lee

Gup

2009

J of Money Credit Banking

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Would the credit ratings of unsolicited banks be higher if they were solicited? Alternatively, would the credit ratings of solicited banks would be lower if they were unsolicited? To answer these questions, we use an endogenous regime-switching model and data from 460 commercial banks in 72 countries, excluding the United States, for the period 1998-2003. The answer to both questions is yes. Our results show that the observed differences between solicited and unsolicited ratings can be explained by both the solicitation status and financial profile of the banks. This finding is a new contribution to the literature. Copyright (c) 2009 The Ohio State University.

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Section: Methodsmentioning

confidence: 99%

Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries

Poon¹,

Lee

Gup

2009

J of Money Credit Banking

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“…Public information (pi) ratings are not normally modified with 'þ' or 'À' designations. 2 In October 2000, Fitch acquired Thomson BankWatch and started to issue unsolicited bank ratings (Van Roy, 2005). A shadow individual rating was used by Fitch to replace Thomson BankWatch's Credit Evaluation (CE) Scoring (or rating) (Fitch, 2001a;and Van Roy, 2005).…”

Section: (Ii) Solicited and Unsolicited Ratingsmentioning

confidence: 99%

“…2 In October 2000, Fitch acquired Thomson BankWatch and started to issue unsolicited bank ratings (Van Roy, 2005). A shadow individual rating was used by Fitch to replace Thomson BankWatch's Credit Evaluation (CE) Scoring (or rating) (Fitch, 2001a;and Van Roy, 2005). According to Golin (2001 p. 580), 'CE ratings could always be read as unsolicited'.…”

Section: (Ii) Solicited and Unsolicited Ratingsmentioning

confidence: 99%

“…Firms with shadow ratings did not request a rating and in this sense the ratings are ‘unsolicited’. Van Roy (2005) provides additional background on Fitch's shadow and full due diligence ratings (non‐shadow ratings). To facilitate our references to Fitch's literatures, Fitch's official term ‘shadow rating’ will be adopted in this study.…”

Section: Introductionmentioning

confidence: 99%

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Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings

Poon¹,

Firth²

2005

Business Fin & Account

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In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two-step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings. Copyright Blackwell Publishers Ltd, 2005.

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“…Empirical research does indeed find that unsolicited ratings tend to be lower than solicited ones. However, rather than interpreting this finding as absolute proof of the use of unsolicited ratings to blackmail issuers, comparatively lower unsolicited ratings may well be attributed to other, more powerful explanatory factors, including: (a) self‐selection bias, in the sense that the issuers that are not soliciting ratings (and thus comprising the sample of issuers receiving unsolicited ratings) are the ones that have the weaker financial profiles (Poon, 2003; Bannier and Tyrell, 2005); 66 (b) provision of incomplete private information by issuers to CRAs, which in turn fuels the conservatism of CRAs, especially in cases of opaque issuers (Van Roy, 2006; Fairchild et al, 2009; Poon et al, 2009; Bannier et al, 2010); and (c) employment of diverse rating models, procedures, scales, determinants and weights of determinants (Poon, 2003).…”

Section: Rating the Principles Of The New Eu Regulatory Architecmentioning

confidence: 99%

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

Staikouras¹

2012

Financial Market

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The undergoing financial turbulence has raised significant concerns over the role that credit rating agencies (CRAs) played in the inception, magnification and expansion of the crisis. In response, the EU legislature has adopted Regulation 1060/2009, which, for the first time, set out a legally binding pan‐European authorization regime for CRAs, which issue ratings that have been used by EU‐based financial institutions. As the turmoil turned into an unprecedented Eurozone debt crisis, EU politicians have been calling for tighter regulation of the credit rating industry. Drawing on the relevant empirical and theoretical research and building upon a comparative study of the corresponding US framework, the paper discusses critically the principles underlying EU Regulation 1060/2009 and the most recent suggestions for its reform. The paper argues that although, overall, the EU Regulation seems to be a well‐balanced instrument in the sense that it introduces the essential checks upon CRAs’ behavior while avoiding excessive regulatory intervention, more fine‐tuning is needed in certain fields, including, rating shopping, financial ties with rated entities, abuse of inside information, transparency and CRAs’ accountability.

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Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?

Cited by 137 publications

References 20 publications

Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries

Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries

Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

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