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
Access to external full text or publisher's version may require subscription.Full-text Version
Publisher’s Version
Language
English
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
