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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Biased issuer-paid credit ratings and alternative credit measures of corporate default risk |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 69 |
| Date | 2016 |
| Abstract Text | Issuer-paid credit ratings such as those from S&P or Moody's are supposed to be upward biased because conflicts of interest inherent in the issuer-paid business model induce the ratings to be too generous relative to the default risk of the issuer. The present master thesis discusses the market-based Bloomerg default risk model DRSK as a potential alternative to issuer-paid agency ratings. The main sample consists of 226 U.S. issuers which defaulted in the period from January 2003 to May 2016 and have multiple ratings by S&P and Bloomberg DRSK over that period. The applied ordered-probit analysis shows that S&P issuer level ratings are upward biased, especially when conflicts of interest are most pronounced as measured by outstanding debt which is a proxy for the issuer-paid rating agency's future business opportunities with the issuer. Additionally, Wilcoxon-Mann-Whitney tests indicate that Bloomberg DRSK ratings are timelier in predicting defaults compared to S&P ratings. |
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