Do Rating Agencies Cater? Evidence from Rating-Based Contracts

@inproceedings{Kraft2015DoRA,
  title={Do Rating Agencies Cater? Evidence from Rating-Based Contracts},
  author={Pepa Kraft},
  year={2015}
}
I examine whether rating agencies cater to borrowers with rating-based performance-priced loan contracts (PPrating firms). I use data from Moody׳s Financial Metrics on its quantitative adjustments for off-balance-sheet debt and qualitative adjustments for soft factors. In the cross-section and for borrowers experiencing adverse economic shocks, I find that these adjustments are more favorable for PPrating firms than for other firms, consistent with rating agencies catering to the PPrating… CONTINUE READING

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