Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?
- Patrick Van RoyAffiliated withNational Bank of Belgium and Université Libre de Bruxelles Email author
Rent the article at a discountRent now
* Final gross prices may vary according to local VAT.Get Access
This paper analyses the effect of soliciting a rating on the actual outcome of bank ratings. Using two sample banks (one rated by Fitch and one rated by S&P), I find evidence that unsolicited ratings tend to be lower than solicited ones, after accounting for differences in observable bank characteristics. This downward bias does not seem to be explained by the fact that better-quality banks self-select into the solicited group. Rather, unsolicited ratings appear to be lower because they are based on public information and are therefore dependent on the quantity of public information disclosed by the banks. As a result, unsolicited ratings tend to be more conservative than solicited ratings, which incorporate both public and non-public information. While the latter result is also consistent with the fact that credit rating agencies may blackmail low-disclosure firms, the findings suggest that blackmailing—if it is actually used—is ineffective in making these firms start to pay for a rating.
KeywordsCredit rating agencies Unsolicited ratings Self-selection Public disclosure Accounting transparency
JEL classificationG15 G18 G21
- Is There a Difference Between Solicited and Unsolicited Bank Ratings and, If So, Why?
Journal of Financial Services Research
Volume 44, Issue 1 , pp 53-86
- Cover Date
- Print ISSN
- Online ISSN
- Springer US
- Additional Links
- Credit rating agencies
- Unsolicited ratings
- Public disclosure
- Accounting transparency
- Industry Sectors
- Patrick Van Roy (1)
- Author Affiliations
- 1. National Bank of Belgium and Université Libre de Bruxelles, 14 Boulevard de Berlaimont, 1000, Brussels, Belgium