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Political similarities in credit ratings
journal contribution
posted on 2023-06-10, 06:41 authored by Quan Pham Minh NguyenQuan Pham Minh Nguyen, Hung Xuan Do, Alexander Molchanov, Lily Nguyen, Nhut H NguyenWe investigate whether political similarities between credit rating agencies (CRAs) and bond issuers impact credit rating quality. We find that a higher degree of similarity of political affiliation leads to a decrease in timeliness and accuracy of downgrades prior to default events. Our finding supports the notion that CRAs tend to maintain/assign preferential ratings to politically similar firms via delaying negative signals as favourable rating activities. We further show that these politically similar firms tend to increase the proportion of donations to their favoured party following favourable credit ratings. Interestingly, this result is confined to Republican-leaning firms. The results indicate that CRAs successfully use biased credit ratings as an indirect channel of political party support. Our findings support the political similarities in credit ratings hypothesis.
History
Publication status
- Published
File Version
- Accepted version
Journal
International Review of Financial AnalysisISSN
1057-5219Publisher
ElsevierExternal DOI
Volume
86Page range
a102515Department affiliated with
- Accounting and Finance Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2023-04-12First Compliant Deposit (FCD) Date
2023-04-04Usage metrics
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