Solicited and unsolicited credit ratings : a global perspective

Pui Han, Winnie POON, Kam C., Johnny CHAN

Research output: Working paperWorking paper series

Abstract

We conducted a global study of the long-term issuer ratings of nonfinancial firms from Standard and Poor's Ratings Services (SandP) for the period 1998–2003. Specifically, we focused on the solicited versus unsolicited ratings and sample-selection bias in the analysis. Unlike the literature, we adopted an improved method using Wooldridge’s instrumentalvariable approach to mitigate the concern of specification errors in Heckman’s model. We found that the probability of seeking a long-term issuer rating is positively related to the size and profitability of the firm, and negatively related to the growth opportunities and debt levels of the firm. The credit rating is positively related to the sovereign rating, size, and profitability of the issuer, and negatively related to the debt ratio of the issuer. Consistent with the literature, we found sample-selection bias in credit ratings. Our findings suggest that the firms with solicited ratings seem to be more profitable, more liquid, and have lower leverage than the issuers with unsolicited ratings. After controlling for sample-selection bias and some key financial ratios, we found that unsolicited firms, on average, seem to have lower long-term issuer ratings.
Original languageEnglish
PublisherAsian Development Bank Institute
Number of pages26
DOIs
Publication statusPublished - Aug 2010

Publication series

NameADBI Working Paper Series
PublisherAsian Development Bank Institute
No.244

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Credit rating
Rating
Sample selection bias
Profitability
Debt
Sovereign ratings
Financial ratios
Specification error
Debt ratio
Heckman
Leverage
Growth opportunities

Cite this

POON, P. H. W., & CHAN, K. C. . J. (2010). Solicited and unsolicited credit ratings : a global perspective. (ADBI Working Paper Series; No. 244). Asian Development Bank Institute. https://doi.org/10.2139/ssrn.1671452
POON, Pui Han, Winnie ; CHAN, Kam C., Johnny. / Solicited and unsolicited credit ratings : a global perspective. Asian Development Bank Institute, 2010. (ADBI Working Paper Series; 244).
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POON, PHW & CHAN, KCJ 2010 'Solicited and unsolicited credit ratings : a global perspective' ADBI Working Paper Series, no. 244, Asian Development Bank Institute. https://doi.org/10.2139/ssrn.1671452

Solicited and unsolicited credit ratings : a global perspective. / POON, Pui Han, Winnie; CHAN, Kam C., Johnny.

Asian Development Bank Institute, 2010. (ADBI Working Paper Series; No. 244).

Research output: Working paperWorking paper series

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POON PHW, CHAN KCJ. Solicited and unsolicited credit ratings : a global perspective. Asian Development Bank Institute. 2010 Aug. (ADBI Working Paper Series; 244). https://doi.org/10.2139/ssrn.1671452