Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5086657 | Journal of Accounting and Economics | 2015 | 20 Pages |
Abstract
I examine whether rating agencies cater to borrowers with rating-based performance-priced loan contracts (PPrating firms). I use data from Moody׳s Financial Metrics on its quantitative adjustments for off-balance-sheet debt and qualitative adjustments for soft factors. In the cross-section and for borrowers experiencing adverse economic shocks, I find that these adjustments are more favorable for PPrating firms than for other firms, consistent with rating agencies catering to the PPrating borrowers. I find that this catering is muted in two circumstances when rating agencies׳ reputational costs are higher than usual: (1) near the investment grade and prime short-term rating thresholds and (2) when Fitch Ratings also provides a rating.
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Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Pepa Kraft,