Artikel

Semiparametric estimation of a corporate bond rating model

This paper investigates the incentive of credit rating agencies (CRAs) to bias ratings using a semiparametric, ordered-response model. The proposed model explicitly takes conflicts of interest into account and allows the ratings to depend flexibly on risk attributes through a semiparametric index structure. Asymptotic normality for the estimator is derived after using several bias correction techniques. Using Moody's rating data from 2001 to 2016, I found that firms related to Moody's shareholders were more likely to receive better ratings. Such favorable treatments were more pronounced in investment grade bonds compared with high yield bonds, with the 2007-2009 financial crisis being an exception. Parametric models, such as the ordered-probit, failed to identify this heterogeneity of the rating bias across different bond categories.

Language
Englisch

Bibliographic citation
Journal: Econometrics ; ISSN: 2225-1146 ; Volume: 9 ; Year: 2021 ; Issue: 2 ; Pages: 1-20 ; Basel: MDPI

Classification
Wirtschaft
Subject
bias control
credit ratings
financial crisis
semiparametric method

Event
Geistige Schöpfung
(who)
Jiang, Yixiao
Event
Veröffentlichung
(who)
MDPI
(where)
Basel
(when)
2021

DOI
doi:10.3390/econometrics9020023
Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Artikel

Associated

  • Jiang, Yixiao
  • MDPI

Time of origin

  • 2021

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