Rating Shopping or Catering? An Examination of the Response to Competitive Pressure for CDO Credit Ratings
By John M. Griffin, Jordan Nickerson, D. Tang. 2013
185 citations recorded by the source corpus.
We examine whether "rating shopping" or "rating catering" is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more frequently than tranches rated by only one of them, which is inconsistent with pure rating shopping. Rating agencies made upward adjustments beyond their model when their competitor had more lenient assumptions. Finally, consistent with rating catering, S&P's and Moody's adjustments and disagreements at security issuance were reflected in subsequent rating downgrades, suggesting that adjustments were harmful. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/dc2a035ac3a215812e336c06494e09829f730916
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Citations in the corpus
- Who Facilitated Misreporting in Securitized Loans (2016, background): “For CDOs, Griffin and Tang (2012) and Griffin, Nickerson, and Tang (2013) show that rating agencies issued inflated ratings, adjusted credit rating models upwards from 2004 to 2007, and sought to match their competitors’ ratings to please issuers.”