Credit Ratings And Bank Monitoring Ability
In this paper, the authors use credit rating data from two Swedish banks to elicit evidence on banks' loan monitoring ability. They test the banks' ability to forecast credit bureau ratings and vice versa and show that bank ratings are able to predict future credit bureau ratings. This is evidence that bank credit ratings, consistent with theory, contain valuable private information. However, they also find that public ratings have an ability to predict future bank ratings, implying that internal bank ratings do not fully or efficiently incorporate all publicly available information.