Project Management

Do S&P's Corporate Ratings Reflect Credit Shocks?

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Executive Summary

This paper examines empirically whether corporate ratings by the credit rating agency Standard & Poor's reflect fundamental and publicly observable shocks to the credit quality of companies. This serves to assess the degree of information sensitivity of external ratings, and the timeliness of their adjustments. The authors evidence on a large sample of European companies from 2000-2008 clearly indicates that external ratings frequently do not reflect fundamental changes in the credit quality of companies. This lack of information sensitivity seems neither attributable to private information from monitoring nor the rating-through-the-cycle approach employed by S&P.

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