Title

Solicited and unsolicited credit ratings : a global perspective

Document Type

Working paper

Source Publication

ADBI Working Paper Series

Publication Date

8-24-2010

Issue

244

Publisher

Asian Development Bank

Abstract

We conducted a global study of the long-term issuer ratings of nonfinancial firms from Standard and Poor's Ratings Services (S&P) for the period 1998–2003. Specifically, we focused on the solicited versus unsolicited ratings and sample-selection bias in the analysis. Unlike the literature, we adopted an improved method using Wooldridge’s instrumentalvariable approach to mitigate the concern of specification errors in Heckman’s model. We found that the probability of seeking a long-term issuer rating is positively related to the size and profitability of the firm, and negatively related to the growth opportunities and debt levels of the firm. The credit rating is positively related to the sovereign rating, size, and profitability of the issuer, and negatively related to the debt ratio of the issuer. Consistent with the literature, we found sample-selection bias in credit ratings. Our findings suggest that the firms with solicited ratings seem to be more profitable, more liquid, and have lower leverage than the issuers with unsolicited ratings. After controlling for sample-selection bias and some key financial ratios, we found that unsolicited firms, on average, seem to have lower long-term issuer ratings.

DOI

10.2139/ssrn.1671452

Publisher Statement

Copyright © 2009 Asian Development Bank Institute

Full-text Version

Publisher’s Version

Recommended Citation

Poon, W. P. H. and Chan, K. C. (2010). Solicited and Unsolicited Credit Ratings: A Global Perspective. ADBI Working Paper No. 244. Available at SSRN: http://ssrn.com/abstract=1671452 or doi: 10.2139/ssrn.1671452