The impact of ESMA regulatory identifiers on the quality of ratings

Klusak, Patrycja, Alsakka, Rasha and ap Gwilym, Owain (2019) The impact of ESMA regulatory identifiers on the quality of ratings. International Review of Financial Analysis, 66. ISSN 1057-5219

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Abstract

This paper investigates the impact of the introduction of ESMA credit rating identifiers on the quality of ratings. These identifiers form part of the disclosure requirements placed upon credit rating agencies (CRAs) since 2012 under a new EU regulatory regime and have not featured in any prior empirical literature. Rating informativeness is gauged from bond market data. Using a rich dataset of sovereign rating actions by the three major CRAs for 70 countries during the period 2006–2016, we find that the ESMA requirement for identifiers yields varying outcomes across downgrades and upgrades. The rating quality associated with downgrades by Moody's improves, whereas upgrades by S&P, Moody's and Fitch are of lower quality. These results are consistent with greater conservatism in rating policies after the regulatory reforms. ESMA's additional focus on analyst location does not reveal any consistent difference in the quality of ratings.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Depositing User: LivePure Connector
Date Deposited: 18 Jun 2019 09:30
Last Modified: 04 Aug 2020 23:44
URI: https://ueaeprints.uea.ac.uk/id/eprint/71446
DOI: 10.1016/j.irfa.2019.06.004

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