In recent years, the Chinese government has highly emphasized the development of bond market, which plays an important role during the development of macro-economy and finance sector in China, especially on some crucial steps concerning national economy and the people’s livelihood, as well as reforms in banking industry and the financial innovations. However, the bond market is smaller compared...

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We analyze the entry of new credit rating agencies into structured finance products. Our setting is unique as we study a period in which the incumbents’ reputation was extremely poor and the benefit of more fee income from inflating ratings was low. We find entrants cater to issuers by issuing higher ratings than incumbents, particularly for interest-only (IO) tranches. Ratings by incumbents be...

This paper develops a theory of bond pricing in which a firm’s instantaneous probability of default is allowed to depend on its credit rating as well as on a latent systematic factor. We examine two versions of the model, one with fixed probabilities of ratings changes and another in which the probability of rating changes varies with the systematic factor. We estimate the model in a Bayesian c...