Conference paper

Authors list: Bannier, Christina E.; Hirsch, Christian W.

Publication year: 2010

Pages: 3037-3049

Journal: Journal of Banking and Finance

Volume number: 34

Issue number: 12

ISSN: 0378-4266

eISSN: 1872-6372

DOI Link: https://doi.org/10.1016/j.jbankfin.2010.07.002

Conference: 7th INFINITI Conference on International Finance

Publisher: Elsevier

Abstract: 
Credit rating agencies do not only disclose simple ratings but announce watchlists (rating reviews) and outlooks as well. This paper analyzes the economic function underlying the review procedure. Using Moody's rating data between 1982 and 2004, we find that for borrowers of high creditworthiness, rating agencies employ watchlists primarily in order to improve the delivery of information. For low-quality borrowers, in contrast, the review procedure seems to have developed into an implicit contract 5 la Boot et al. (2006), inducing the companies "on watch" to abstain from risk-augmenting actions. The agencies' economic role hence appears to have been enhanced from a pure information certification towards an active monitoring function. (C) 2010 Elsevier B.V. All rights reserved.

Harvard Citation style: Bannier, C. and Hirsch, C. (2010) The economic function of credit rating agencies - What does the watchlist tell us?, Journal of Banking and Finance, 34(12), pp. 3037-3049. https://doi.org/10.1016/j.jbankfin.2010.07.002

APA Citation style: Bannier, C., & Hirsch, C. (2010). The economic function of credit rating agencies - What does the watchlist tell us?. Journal of Banking and Finance. 34(12), 3037-3049. https://doi.org/10.1016/j.jbankfin.2010.07.002