Assessing Credit Rating Agencies by Bond Issuers and Institutional Investors

Authors: Baker, H. Kent¹; Mansi, Sattar A.²

Source: Journal of Business Finance & Accounting, Volume 29, Numbers 9-10, November/December 2002 , pp. 1367-1398(32)

Publisher: Wiley-Blackwell

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Abstract:

We examine how a sample of publicly traded corporate bond issuers and institutional investors assess the four major nationally recognized rating agencies and their role in capital markets. The results show that issuers and investors differ dramatically in their assessments about rating agencies. Specifically, the majority of institutional investors require only one rating when they buy rated corporate bonds, but most issuers obtain two or more ratings. Issuers and investors also differ in their assessments about whether ratings accurately reflect creditworthiness and timeliness. The results suggest that differences reflect the different roles that rating agencies provide in the market place.

Keywords: credit ratings; bond issuers; institutional investors

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1468-5957.00474

Affiliations: 1: American University Kogod School of Business, 2: Virginia Tech

Publication date: 2002-11-01