Did government regulations lead to inflated credit ratings?

Resumo

Securities and Exchange Commission (SEC) regulations in 1975 gave select rating agencies increased market power by increasing both barriers to entry and the reliance on ratings for regulations. We test whether these regulations led to ratings inflation. We find that defaults and negative financial changes are more likely for firms given the same rating if the rating was assigned after the SEC action. Furthermore, firms initially rated Baa in the post-regulation period are 19% more likely to be negatively downgraded to speculative grade than firms rated Baa in the pre-regulation period. These results indicate that the market power derived from the SEC led to ratings inflation. © 2016 INFORMS.

Ficha do documento

Tipo

Artigo científico

Ano

2018

Instituição

INFORMS Inst.for Operations Res.and the Management Sciences

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1287/mnsc.2016.2615

Identificador

oai:repositorio.fgv.br:10438/25536

Temas

Economia

Palavras-chave

Capital markets regulationCredit ratingsDefault riskRegulatory licensingCommerceRatingGovernment regulationMarket powerRating agenciesSecurities and exchange commissionsLaws and legislationEconomia