The economics of rating watchlists: evidence from rating changes

  • Generally, information provision and certification have been identified as the major economic functions of rating agencies. This paper analyzes whether the “watchlist" (rating review) instrument has extended the agencies' role towards a monitoring position, as proposed by Boot, Milbourn, and Schmeits (2006). Using a data set of Moody's rating history between 1982 and 2004, we find that the overall information content of rating action has indeed increased since the introduction of the watchlist procedure. Our findings suggest that rating reviews help to establish implicit monitoring contracts between agencies and borrowers and as such enable a finer partition of rating information, thereby contributing to a higher information quality.

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Author:Christian HirschGND, Christina E. BannierORCiDGND
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,02
Series (Serial Number):CFS working paper series (2008, 02)
Document Type:Working Paper
Year of Completion:2008
Year of first Publication:2008
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2008/01/29
Tag:Credit Rating Agencies; Event Study; Market Reactions; Watchlist
GND Keyword:Rating; Checkliste
Issue:December 12, 2007
Page Number:46
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht