Work

Rating Shopping or Catering?An Examination of the Response to Competitive Pressure for CDO Credit Ratings

Year: 2013

Type: article

Abstract: We examine whether “rating shopping” or “rating catering” is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more frequently than tranches rated by only one of them, which is inconsistent with pure rating shopping. Rating agencies made upward adjustments beyond their model when their competitor had more lenient assumptions. Finally, consistent with rating catering, S&P's and Moody's adjustments and disagreements at security issuance were reflected in subsequent rating downgrades, suggesting that adjustments were harmful.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hht036

Authors: John M. Griffin, Jordan Nickerson, Dragon Yongjun Tang

Institutions: Chinese University of Hong Kong, Hong Kong University of Science and Technology, University of Houston, The University of Texas at Austin, University of Hong Kong

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3125842352

FWCI: 32.07

Cites: 56

Cited by: 204

Related to: 10