Structured Debt Ratings: Evidence on Conflicts of Interest

Efing, Matthias; Hau, Harald

doi:10.2139/ssrn.2253970

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Structured Debt Ratings: Evidence on Conflicts of Interest

Swiss Finance Institute Research Paper No. 13-21

39 Pages Posted: 19 Apr 2013 Last revised: 3 Sep 2014

See all articles by Matthias Efing

Matthias Efing

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written: August 26, 2014

Abstract

We test if issuers of asset- and mortgage-backed securities receive rating favors from agencies with which they maintain strong business relationships. Controlling for issuer fixed effects and a large set of credit risk determinants, we show that agencies publish better ratings for those issuers that provide them with more bilateral securitization business. Such rating favors are larger for very complex structured debt deals and for deals issued during the credit boom period. Our analysis is based on a new deal-level rating statistic that accounts for the full distribution of tranche ratings below the AAA cut-off point of a structured debt deal.

Keywords: Credit Ratings, Ratings Inflation, Conflicts of Interest, Structured Debt

JEL Classification: G01, G10, G24

Suggested Citation: Suggested Citation

Efing, Matthias and Hau, Harald, Structured Debt Ratings: Evidence on Conflicts of Interest (August 26, 2014). Swiss Finance Institute Research Paper No. 13-21, Available at SSRN: https://ssrn.com/abstract=2253970 or http://dx.doi.org/10.2139/ssrn.2253970