Publications
Publications
- 2021
- HBS Working Paper Series
International Evidence on the Effects of a Local Presence by U.S. Credit Rating Agencies
By: Liran Eliner, Michael Machokoto and Anywhere Sikochi
Abstract
We investigate a long-standing claim in the international debt markets that major U.S.-based credit rating agencies do not fully understand developments in other economies and thereby impede firms' access to capital by assigning lower ratings. Consistent with this claim, Moody's and S&P credit ratings are more favorable to issuers after the rating agencies establish a local presence in the issuer's country of domicile. The favorable ratings appear to be driven by a decrease in negative adjustments applied to model-predicted ratings, indicating that rating analysts become more confident with their quantitative model outputs. Moreover, there is an increase in positive adjustments, suggesting that rating analysts become more willing to assign ratings higher than model-predicted ratings. There is some evidence that the higher ratings, after the local presence, do not merely reflect catering to local economies. Our research findings inform the debate on the regulation of the credit rating agency markets around the world.
Keywords
Credit Rating Agencies; Credit Ratings; Rating Adjustments; Rating Disagreement; Geographic Proximity; Soft Information; Credit; Geographic Location; Local Range
Citation
Eliner, Liran, Michael Machokoto, and Anywhere Sikochi. "International Evidence on the Effects of a Local Presence by U.S. Credit Rating Agencies." Harvard Business School Working Paper, No. 20-083, February 2020. (Revised April 2021.)
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