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http://hdl.handle.net/10419/27929
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| Title: | | The economic function of credit rating agencies: what does the watchlist tell us?  |
| Authors: | | Bannier, Christina E. Hirsch, Christian |
| Issue Date: | | 2009 |
| Series/Report no.: | | Working paper series // Frankfurt School of Finance & Management 124 |
| 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 `a la Boot, Milbourn, and Schmeits (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. |
| Subjects: | | Credit Rating Agencies Credit Rating Watchlist Rating Review Market Reaction Event Study |
| JEL: | | G14 G29 G33 |
| Persistent Identifier of the first edition: | | urn:nbn:de:101:1-2009070304 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management
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