University of Cyprus
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An Empirical Analysis of Changes in the Relative Timeliness of Issuer‐Paid vs. Investor‐Paid Ratings.
Berwart, Erik, Massimo Guidolin, and Andreas Milidonis.
Journal of Corporate Finance, forthcoming.
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.