Berwart, Erik, Massimo Guidolin, and Andreas Milidonis.
Journal of Corporate Finance, 59, 88-118.
Publication year: 2017
  • We conduct lead-lag analysis of issuer-paid vs. investor-paid changes in corporate bond ratings (1997-2007), after the tighter rating agency regulations (2002-2006).
  • This is first study to study both changes in ratings and changes in outlooks from the leading rating agencies.
  • First, we find a bi-directional lead-lag effect between investor-paid and issuer-paid agencies after 2002.
  • Second, issuer‐paid agencies behave less conservatively with outlook changes than rating changes.
  • Third, stock market reactions are larger to investor‐paid than issuer-paid downgrades implying that investor‐paid rating actions carry superior information.