Reputations and Credit Ratings: Evidence from Commercial Mortgage-Backed Securities
53 Pages Posted: 26 Oct 2016 Last revised: 6 May 2020
Date Written: September 13, 2018
How do changes in a rating agency’s reputation affect the ratings market? We study the dynamics of credit ratings after Standard & Poor’s (S&P) was shut out of a large segment of the commercial mortgage-backed securities (CMBS) ratings market following a procedural mistake. Exploiting the fact that most CMBS securities have ratings from multiple agencies, we show that S&P subsequently eased its standards compared to other raters. This coincided with a partial recovery in the number of deals S&P was hired to rate. Our findings are consistent with the view that an agency can regain market share after suffering reputational damage by issuing more optimistic ratings.
Keywords: Credit ratings, reputation, competition, information quality, commercial mortgage-backed securities
JEL Classification: G20, G24, G28
Suggested Citation: Suggested Citation