Ali Ebrahim Nejad, Saeid Hoseinzade, Ali Niazi

Credit rating agencies during credit crunch

  • Economics and Econometrics
  • Finance
Save to CiteDrive Show PDF

AbstractIn this paper, we study whether credit rating agencies (CRAs), as they claim, follow the rating through‐the‐cycle approach as opposed to a pro‐cyclical approach. In particular, we compare the behavior of CRAs during the credit crunch and normal market conditions. Using the credit rating data by S&P, we find that CRAs assign lower credit ratings to firms during credit crunch relative to normal times. Nevertheless, this result does not necessarily imply that CRAs show an excessively pro‐cyclical behavior if credit crunches have a long‐term fundamental impact on firms. Our further investigation reveals that downgrades during a credit crunch will not be reversed over the subsequent 1–5 years, which supports through‐the‐cycle credit rating.

Need a simple solution for managing your BibTeX entries? Explore CiteDrive!

  • Web-based, modern reference management
  • Collaborate and share with fellow researchers
  • Integration with Overleaf
  • Comprehensive BibTeX/BibLaTeX support
  • Save articles and websites directly from your browser
  • Search for new articles from a database of tens of millions of references
Try out CiteDrive

More from our Archive