Split Ratings and Differences in Corporate Credit Rating Policy between Moody's and Standard &amp; Poor's

Bowe, Michael; Larik, Waseem

doi:10.1111/fire.12054

Cited by 18 publications

(9 citation statements)

References 37 publications

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“…Bowe and Larik (2014) find consistent rating differences between S&P and Moody’s for issuers’ credit ratings and further point out alternative rating methodologies for certain market sectors. Yet, they do not empirically examine how sectors affect credit ratings.…”

Section: Theoretical and Empirical Background Of Credit Ratingssupporting

confidence: 57%

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The impact of market sectors and rating agencies on credit ratings: global evidence

Lopatta

Tchikov

Körner

2019

JRF

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Purpose A credit rating, as a single indicator on one consistent scale, is designed as an objective and comparable measure within a credit rating agency (CRA). While research focuses mainly on the comparability of ratings between agencies, this paper additionally questions empirically how CRAs meet their promise of providing a consistent assessment of credit risk for issuers within and between market segments of the same agency. Design/methodology/approach Exhaustive and robust regression analyses are run to assess the impact of market sectors and rating agencies on credit ratings. The examinations consider the rating level, as well as rating downgrades as a further measure of empirical credit risk. Data stems from a large global sample of Bloomberg ratings from 11 market sectors for the period 2010-2018. Findings The analyses show differing effects of sectors and agencies on issuer ratings and downgrade probabilities. Empirical results on credit ratings and rating downgrades can then be attributed to investment grade and non-investment grade ratings. Originality/value The paper contributes to current finance research and practice by examining the credit rating differences between sectors and agencies and providing assistance to investors and other stakeholders, as well as researchers, how issuers’ sector and rating agency affiliations act as relative metrics.

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Section: Theoretical and Empirical Background Of Credit Ratingssupporting

confidence: 57%

“…S&P and Moody’s. As issuer ratings simultaneously obtained by the big three agencies are only affordable for very large issuers, by doing so we consider a sample set that is not only larger but also related to current finance practice (Bowe and Larik, 2014 or Ghosh, 2013). Results are presented in Table IV, Models 4 and 5.…”

Section: Empirical Findingsmentioning

confidence: 99%

The impact of market sectors and rating agencies on credit ratings: global evidence

Lopatta

Tchikov

Körner

2019

JRF

View full text Add to dashboard Cite

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“…We include control variables that are related to split ratings as shown in previous researches (Livingston et al, 2007; Boew and Larik, 2014; Sonu, 2020). We include a set of financial condition variables such as firm size ( SIZE ), interest coverage ( InterestCoverage ), leverage ( Leverage ), profitability ( ROA ), growth ( MTB ), operating income volatility ( ORISK ), credit rating ( Grade ), auditor size ( Auditor ), firm age ( AGE ), and accounting quality ( AV_PMDA ).…”

Section: Methodsmentioning

confidence: 99%

Voluntary Disclosure and Rating Disagreement among Credit Rating Agencies: Evidence from Korea

Kim

2021

Asia-Pac J of Fin Stud

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We examine the effect of voluntary disclosure on rating disagreement among credit rating agencies (CRAs). Previous empirical findings suggest that precise financial reporting decreases information risk and affects split ratings. However, no prior research has investigated the relationship between voluntary disclosure and split ratings, even though such disclosure can reduce information asymmetry. We find a negative relationship between voluntary disclosure and split ratings by CRAs. This study reveals voluntary disclosure that includes the manager's intentions (i.e., discretionary judgment) is a determinant of split ratings. In doing so the study contributes to the literature on the role of voluntary disclosure on CRAs.

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“…Livingston et al () claim that firms' opacity is not only reflected by their internal accounting data but also by external factors such as the number of equity analysts and the standard deviation of analysts' earnings forecasts. Bowe and Larik () show that the split corporate ratings assigned by Moody's and S&P can be predicted with firm‐specific financial and governance characteristics such as size, profitability, and percentage of independent directors.…”

Section: Literature Reviewmentioning

confidence: 99%

What drives differences of opinion in sovereign ratings? The roles of information disclosure and political risk

Alsakka

Gwilym

2017

Int. J Fin Econ

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This paper investigates the causes of split sovereign ratings across S&P, Moody's, and Fitch for 64 countries from 1997 to 2011. We identify that split sovereign ratings are not symmetric, with S&P tending to be the most conservative agency. We find that opaque sovereigns are more likely to receive split ratings. Political risk plays a highly significant role in explaining split ratings and dominates economic and financial indicators. Out‐of‐sample model performance is enhanced by capturing political risk. Government information disclosure affects split ratings between Moody's and Fitch in emerging countries. The study implies an incentive for governments to reduce political uncertainty and to enhance transparency.

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Split Ratings and Differences in Corporate Credit Rating Policy between Moody's and Standard & Poor's

Cited by 18 publications

References 37 publications

The impact of market sectors and rating agencies on credit ratings: global evidence

The impact of market sectors and rating agencies on credit ratings: global evidence

Voluntary Disclosure and Rating Disagreement among Credit Rating Agencies: Evidence from Korea

What drives differences of opinion in sovereign ratings? The roles of information disclosure and political risk

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