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283th Biweekly Academic Forum

Published:2019-06-12  Views:


Topic:Do Credit Rating Agencies Respond to Investors’ Demand?


Speaker:Yao TANG, Associate Professor of Department of Applied Economics in GuanghuaSchool of Management of Peking University, Researcher of CITIC Foundation forReform and Development Studies, acquired PhD in economics from University ofBritish Columbia. From 2009 to 2017, he had taught in Bowdoin College andreceived his tenure. In 2017, he joined Guanghua School of Management of PekingUniversity as a full time lecturer. And now he mainly researches and teaches inthe macroeconomics, international economics and Chinese enterprise strategy, inwhich he published a series of papers on academic journals of economics andmanagement, including Journal of Urban Economics, Journal ofEconometrics, Journal of International Economics, and Managementand Organization Review.


Time: 12:30-13:30,Wednesday,June 19, 2019


Venue:Room 913, Main Building in City Campus of CUFE


Moderator: XuWEI, Associate Professor of School of Finance at CUFE


Abstract:Prior studies have provided evidence that outside pressure can affect howcredit rating agencies (CRAs) assign ratings. In this paper, we examine theimpact of a previously unexplored type of pressure on CRAs’ ratings: investors’demand. Exploiting the exogenous and sharp increase in investors’ demand forcorporate bonds rated A-in 2013 caused by the Federal Reserve’s asset purchase program;we find that S&P upgraded abnormally more BBB+ firms to the A- category inresponse to investors’ demand. To validate our conclusion, we exclude severalalternative explanations. The abnormal upgrade was not observed among firmswith ratings adjacent to BBB+, and was not offset by the downgrade in the sameand subsequent periods. S&P’s disclosure of new rating criteria in 2013cannot rule out the abnormality of the upgrade. In addition, the abnormalupgrade can neither be justified by changes in the upgraded firms’ financialperformance or ability to pay off debt. Further tests show that the marketconsidered the upgraded BBB+ bonds as riskier than other A- bonds and pricedthe upgraded BBB+ bonds similarly with other BBB+ bonds.

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