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ARE RATING AGENCIES STILL CREDIBLE AFTER THE SUBPRIME CRISIS?
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Eleonora Isaia 
, Marina Damilano
Abstract
Reputational concerns should discipline credit rating agencies (CRAs), eliminate any conflicts of interest, and motivate them to provide unbiased ratings. However, the recent financial crisis confirms models of CRAs’ behavior that predict inflated ratings for complex products and during booms. We test whether CRAs suffered a reputational damage for this behavior. We find strong support in the data for our hypothesis. The stock price reaction to rating revisions is significantly lower after the financial crisis, particularly in the financial sector. In multivariate tests, we find that the stock price reaction is lower, on average, in the post-crisis period by 2.3%.
Keywords: Credit Rating Agencies, Subprime Crisis, Information Asymmetry, Reputational Damage
Date received: 29 September 2016
Date accepted: 11 December 2016
How to cite this paper: Isaia, E., & Damilano, M. (2017). Are rating agencies still credible after the subprime crisis? Corporate Ownership & Control, 14(2), 82-87. https://doi.org/10.22495/cocv14i2art8
