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Cross‐Listed Bonds, Information Asymmetry, and Conservatism in Credit Ratings
Author(s) -
ATILGAN YIGIT,
GHOSH ALOKE AL,
YAN MENG,
ZHANG JIEYING
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12232
Subject(s) - conservatism , bond , information asymmetry , credit rating , private information retrieval , bond credit rating , business , asymmetry , actuarial science , accounting , credit risk , finance , political science , credit reference , law , computer science , computer security , physics , quantum mechanics , politics
We propose information asymmetry as an additional explanation for rating conservatism. Because information asymmetry is likely higher for cross‐listed bonds than for U.S. bonds, we expect and find that cross‐listed bonds are rated more conservatively than U.S. domestic bonds at issuance. Further, cross‐listed bonds receive less frequent upgrades and take longer to be upgraded after issuance. Because lower ratings might also reflect higher default risk based on agencies’ private information, we conduct additional tests to discriminate between the rating conservatism and private information explanations. The results are consistent with ratings conservatism and inconsistent with the private information explanation.