Are Credit Ratings Procyclical?

Front Cover
Bank for International Settlements, Monetary and Economic Department, 2003 - Bank capital - 33 pages
0 Reviews
This paper studies the influence of the state of the business cycle on credit ratings. In particular, we assess whether rating agencies are excessively procyclical in their assignment of ratings. Our analysis is based on a model of ratings determination that takes into account factors that measure the business and financial risks of firms, in addition to indicators of macroeconomic conditions. Utilising annual data on all US firms rated by Standard & Poor's, we find little evidence of procyclicality in ratings. By contrast, we find that initial ratings and rating changes exhibit excess sensitivity to the business cycle. The paper offers two explanations of these results.

From inside the book

What people are saying - Write a review

We haven't found any reviews in the usual places.

Common terms and phrases

Bibliographic information