External Credit Ratings and Bank Lending

41 Pages Posted: 30 Aug 2018

See all articles by Christophe Cahn

Christophe Cahn

Banque de France

Mattia Girotti

Université Paris Dauphine - PSL

Federica Salvadè

PSB Paris School of Business

Date Written: August 1, 2018

Abstract

We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms within each rating class receive a positive rating surprise. We find that such firms enjoy greater and cheaper access to bank credit. In particular, they obtain more credit from previously less informed lenders, and start new bank relationships more easily. Consequently, they rely on equity to a lower extent and invest more. These findings suggest that credit ratings help reducing the hold-up problem and increase competition among banks.

Keywords: Credit Ratings, Banks, Lending Technology, Corporate Financing, Real Effects, Holdup problem

JEL Classification: G21, G32

Suggested Citation

Cahn, Christophe and Girotti, Mattia and Salvadè, Federica, External Credit Ratings and Bank Lending (August 1, 2018). Banque de France Working Paper No. 691, Available at SSRN: https://ssrn.com/abstract=3239956 or http://dx.doi.org/10.2139/ssrn.3239956

Christophe Cahn

Banque de France ( email )

Paris
France

Mattia Girotti (Contact Author)

Université Paris Dauphine - PSL ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Federica Salvadè

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

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