This paper studies changes in the information environment brought about by Regulation Fair Disclosure (FD), which was implemented on October 23, 2000. FD now prohibits U.S. public companies from making selective, non-public disclosures to favored analysts and portfolio managers. FD, however, has a number of exclusions, one of which still allows disclosure of nonpublic information to credit rati...

What is the information content of firm ratings? We disentangle the relative contribution to firms’ ratings of sovereign risks and individual firms’ performance indicators, reportedly employed by rating agencies. We reach three conclusions. First, sovereign risks’ contribution is disproportionately greater in developing countries vis-à-vis developed countries. Second, even controlling for the “...

This paper compares and contrasts financial strength ratings assigned by Value Line, Standard and Poor's, and Moody's. All of these rating agencies use modified ratings. When modifiers are considered, these agencies agree between 85 97 percent of the time. A model using stock market information as well as liquidity, leverage, activity and profitability ratios is presented. Cronbach's alpha, a m...

The development of Sukuk market as the alternative to the existing conventional bond market has risen the issue of rating the Sukuk issuance. These credit ratings fulfil a key function of information transmission in capital market. Moreover, Basel Committee for Banking Supervision has now instituted capital charges for credit risk based on credit ratings. Basel II framework allowed the bank to ...

By December 2008, structured finance securities accounted for over $11 trillion worth of outstanding U.S. bond market debt (35%). The lion’s share of these securities was highly rated by rating agencies. More than half of the structured finance securities rated by Moody’s carried a AAA rating—the highest possible credit rating. In 2007 and 2008, the creditworthiness of structured finance securi...

Rating agencies state that they take a rating action only when it is unlikely to be reversed shortly afterwards. Based on a formal representation of the rating process, I show that such a policy provides a good explanation for the empirical evidence: Rating changes occur relatively seldom, exhibit serial dependence, and lag changes in the issuers’ default risk. In terms of informational losses,...

This paper develops a rational expectations framework to analyze how rating agencies’ incentives are altered when ratings are used for regulatory purposes such as bank capital requirements. Regulations of this kind imply that the AAA label of a security is valuable to a regulated investor independent of the information it provides about the riskiness of the security’s underlying cash ‡ows. Our ...