Discussion paper

DP12648 Reputations and credit ratings: evidence from commercial mortgage-backed securities

How do changes in a rating agency’s reputation affect the ratings market? We study the dynamics of credit ratings after Standard & Poor’s (S&P) was shut out of a large segment of the commercial mortgage-backed securities (CMBS) ratings market following a procedural mistake. Exploiting the fact that most CMBS securities have ratings from multiple agencies, we show that S&P subsequently eased its standards compared to other raters. This coincided with a partial recovery in the number of deals S&P was hired to rate. Our findings are consistent with the view that an agency can regain market share after suffering reputational damage by issuing more optimistic ratings.

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Citation

Baghai, R and B Becker (eds) (2018), “DP12648 Reputations and credit ratings: evidence from commercial mortgage-backed securities”, CEPR Press Discussion Paper No. 12648. https://cepr.org/publications/dp12648