Title

Are unsolicited credit ratings biased downward?

Document Type

Journal article

Source Publication

Journal of Banking and Finance

Publication Date

4-1-2003

Volume

27

Issue

4

First Page

593

Last Page

614

Keywords

Ordered-probit model, Selectivity bias, Standard and Poor's ratings, Unsolicited credit ratings

Abstract

There has been considerable controversy over unsolicited credit ratings in recent years. Some dissatisfied issuers allege that unsolicited ratings are biased downward in contrast to solicited ratings. This is the first empirical study to analyze the controversy using pooled time-series cross-sectional data of 265 firms in 15 countries from Standard and Poor's Ratings Services (S&P's) during the period of 1998-2000. The results demonstrate that unsolicited ratings are lower. On the other hand, I also find that those issuers who choose not to obtain rating services from S&P's have weaker financial profiles. Although the difference in ratings can be explained by this significant self-selection bias, results of the Japanese sub-sample indicate that unsolicited ratings are still lower than solicited ratings after controlling for differences in sovereign risk and key financial characteristics.

DOI

10.1016/S0378-4266(01)00253-9

Print ISSN

03784266

E-ISSN

18726372

Publisher Statement

Copyright © 2002 Elsevier Science B.V.

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Poon, W. P. H. (2003). Are unsolicited credit ratings biased downward? Journal of Banking & Finance, 27(4), 593-614. doi: 10.1016/S0378-4266(01)00253-9