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Title:The economics of rating watchlists: evidence from rating changes PDF Logo
Authors:Hirsch, Christian
Bannier, Christina E.
Issue Date:2007
Series/Report no.:Working paper series // Frankfurt School of Finance & Management 88
Abstract:Generally, information provision and certification have been identified as the major economic functions of rating agencies. This paper analyzes whether the watchlist (rating review) instrument has extended the agencies' role towards a monitoring position, as proposed by Boot, Milbourn, and Schmeits (2006). Using a data set of Moody's ratings between 1982 and 2004, we find that the overall information content of rating action has indeed increased due to the introduction of the watchlist procedure. Our findings suggest that rating reviews help to establish implicit monitoring contracts between agencies and borrowers and as such enable a finer partition of rating information, thereby contributing to a higher information quality.
Subjects:Credit rating agencies
watchlist
market reactions
event study
JEL:G14
G29
G33
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008082938
Document Type:Working Paper
Appears in Collections:Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management

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