Are watch procedures a critical informational event in the credit ratings process? An empirical investigation

Howard Chan*, Robert Faff, Paula Hill, Harald Scheule

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)

Abstract

The Boot, Milbourn, and Schmeits (2006) model (Boot model) predicts certain credit rating events are likely to be more informative than others and that credit watch procedures are an important driver of such differences. We test the core empirical predictions of their model. Our sample comprises U.S. corporate issuer credit ratings provided by Moody's, 1990-2006. Our findings fail to uncover compelling evidence for the empirical predictions of the Boot model in relation to the role of watch procedures as coordinating mechanisms. Rather, our findings are more supportive of the view that rating agencies are always at an informational advantage relative to investors.

Original languageEnglish
Pages (from-to)617-640
Number of pages24
JournalJournal of Financial Research
Volume34
Issue number4
DOIs
Publication statusPublished - Dec 2011
Externally publishedYes

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