Information asymmetry and the Brazilian sovereign rating in the assessment of Credit Rating Agencies
DOI:
https://doi.org/10.51341/cgg.v25i3.2822Keywords:
CRAs, Asymmetry, Information, Sovereign ratingAbstract
Objective: analyze the asymmetries of information in the content of the synthetic reports issued by the Credit Rating Agencies (CRA) Standard & Poor's, Moody's, and Fitch on the Brazilian sovereign rating.
Method: a content analysis was performed on the CRA synthetic reports to create variables and categories. Correspondence Analysis (CA) aimed these same category variables at a multidimensional space for comparative analysis.
Originality/Relevance: the study shows how the asymmetry of information between lenders and borrowers of sovereign bonds can also be preceded by the CRAs when they make different assessments of the same financial product available to the market. The result shows that information asymmetry between creditors and borrowers does not end; it just changes the source of information.
Results: the results showed that, although the content of the evaluations was harmful in the CRA, there are asymmetries in specific categories. Standard & Poor's, for example, was the agency that stood out the most in the analyses; this is because it differs from other CRAs and positions itself more freely between categories in different years.
Theoretical/Methodological contributions: the study integrates
qualitative and quantitative methods to expand research on CRA information asymmetry. The study also analyzes synthetic reports, the most accessible to decision-makers in the market, showing that the analysis of complex reports and robust data is not exclusive to analyzing asymmetric information. In addition, it explores results on information asymmetry and the Brazilian sovereign, where few
approaches and investigations have focused on the national academic scenario.
Downloads
References
Ahn, M., Bonsall, S., & Van Buskirk, A. (2014). Asymmetric disclosure to credit rating agencies. University of Texas Working Papers, 3 (8). Retrieved on November 23, 2021, from https://is.gd/dZwdr6
Alsakka, R., Ap Gwilym, O. (2010). Leads and lags in sovereign credit ratings. Journal of Bank Financ, 34, 2614–2626. https://doi.org/10.1016/j.jbankfin.2010.05.001 DOI: https://doi.org/10.1016/j.jbankfin.2010.05.001
Bardin, L. (2011). Análise de conteúdo. Tradução: Luís Antero Reto, Augusto Pinheiro. São Paulo: Edições 70.
Banco Central do Brasil. Manual de Estatísticas Fiscais publicadas pelo Departamento Econômico do Banco Central do Brasil, 2018. https://www.bcb.gov.br/ftp/infecon/Estatisticasfiscais.pdf.
Bartels, B. (2019). Why rating agencies disagree on sovereign ratings. Empirical Economics, 57(5), 1677-1703. https://doi.org/10.1007/s00181-018-1503-y DOI: https://doi.org/10.1007/s00181-018-1503-y
Bedendo, M, Cathcart, L., & El-Jahel, L. (2017). Reputational shocks and the information content of credit ratings. Journal of financial stability, 34, 44-60. https://doi.org/10.1016/j.jfs.2017.12.003 DOI: https://doi.org/10.1016/j.jfs.2017.12.003
Bichoffe, A, C. (2017). Métricas sobre o Estado: por uma sociologia da classificação do risco de crédito soberano Brasileiro. Tese (Doutorado em Ciência política), Universidade Federal De São Carlos, São Carlos, São Paulo, Brasil. https://repositorio.ufscar.br/handle/ufscar/9505.
Broto, C., & Molina, L. (2016). Sovereign ratings and their asymmetric response to fundamentals. Journal of Economic Behavior & Organization, 130, 206-224. https://doi.org/10.1016/j.jebo.2016.07.017 DOI: https://doi.org/10.1016/j.jebo.2016.07.017
Cantor, R., & Packer, F. (1995). The Credit Rating Industry. Journal of Fixed Income, 5 (3), 10–34. https://doi.org/10.3905/jfi.1995.408153 DOI: https://doi.org/10.3905/jfi.1995.408153
Carey, M., Post, M., Sharpe, S. (1998). Does corporate lending by banks and finance companies differ? Evidence on specialization in private debt contracting. Journal of Finance 53, 845–878. https://doi.org/10.1111/0022-1082.00037 DOI: https://doi.org/10.1111/0022-1082.00037
Chan, K, C., & Yung, L, L. (2011). Credit Ratings and Long-term IPO Performance. Journal of Economics and Finance,35 (4), 473-83. https://doi.org/10.1007/s12197-010-9137-8 DOI: https://doi.org/10.1007/s12197-010-9137-8
De Moor, L., Luitel, P., Sercu, P., & Vanpée, R. (2018). Subjectivity in sovereign credit ratings. Journal of Banking and Finance, 88, 366–392. https://doi.org/10.1016/j.jbankfin.2017.12.014 DOI: https://doi.org/10.1016/j.jbankfin.2017.12.014
Drago, D., & Gallo, R. (2017). The impact of sovereign rating changes on the activity of European banks. Journal of Banking & Finance, 85, 99-112. https://doi.org/10.1016/j.jbankfin.2017.08.018 DOI: https://doi.org/10.1016/j.jbankfin.2017.08.018
Ebenroth, C. T., & Dillon, T. J. (1992). The international rating game: An analysis of the liability of rating agencies in Europe, England, and the United States. Law and Policy in International Business, 24, 783–834. https://is.gd/Zz8cl0
Ferri, G., & Lacitignola, P. (2009). Le Agenzie di Rating. Bologna: I Mulino.
Ferri, G., & Liu, L. G. (2005). Assessing the effort of rating agencies in emerging economies: Some empirical evidence. European Journal of Finance, 11(3), 283-295. https://doi.org/10.1080/13518470500039246 DOI: https://doi.org/10.1080/13518470500039246
Fitch. (2019). Sovereign Rating Criteria. Metodologia. Global: Fitch Ratings. https://www.fitchratings.com/site/re/10072225.
Fourcade, M. (2017). State metrology: The rating of sovereigns and the judgment of Nations. In: Morgan, K, J; Orloff, A, S. The many hands of state: Theorizing political authority and Social Control. Cambridge Universe Press. DOI: https://doi.org/10.1017/9781316471586.005
Garmaise, M, J., & Natividad, G. (2010). Information, the Cost of Credit, and Operational Efficiency: An Empirical Study of Microfinance. The Review of Financial Studies, 23(6), 2560-590. https://doi.org/10.1093/rfs/hhq021 DOI: https://doi.org/10.1093/rfs/hhq021
Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (2009). Análise multivariada de dados [recurso eletrônico]. Tradução Adonai Schlup Sant’Anna. – 6. Ed. Porto Alegre: Bookman.
Hemraj, M. (2015). Credit rating agencies: Self-regulation, statutory regulation, and case law regulation in the United States and European Union. Springer. DOI: https://doi.org/10.1007/978-3-319-17927-8
Holosko, M. J. (2010). Overview do qualitative research methods. In: Thyer, B. The Handbook of Social Work Research Methods. SAGE publications. DOI: https://doi.org/10.4135/9781544364902.n18
Ismail, A, Seunghack, O, Nuruzzaman, A. (2015). Split Ratings and Debt-signaling in Bond Markets: A Note. Review of Financial Economics, 24(1) (2015), 36-41. https://doi.org/10.1016/j.rfe.2014.12.003
Johson, R. A., & Wichern, D. W. (2007). Applied multivariate statistical analysis. 6. ed. Englewood Cliffs: Prentice Hall.
Jorge, J. (2019). Feedback effects between credit ratings and financial markets, Economic Modelling. Economic Modelling, 80, 328-338. https://doi.org/10.1016/j.econmod.2018.11.019 DOI: https://doi.org/10.1016/j.econmod.2018.11.019
Jung, Y, Y &, Park, R, S. (2018). The Effect of Information Asymmetry and CRA's Reputation on Bond Yield Spread. Journal of Derivatives and Quantitative Studies (JDQS), 26(2), 217-45. https://doi.org/10.1108/JDQS-02-2018-B0003 DOI: https://doi.org/10.1108/JDQS-02-2018-B0003
Kemper, K. J., & Mortenson, K. (2020). Procyclical ratings and market reactions. The North American Journal of Economics and Finance, 51, 100830. https://doi.org/10.1016/j.najef.2018.08.013 DOI: https://doi.org/10.1016/j.najef.2018.08.013
Kiff, J., Holland, A., Kisser, M., Nowak, S., Saab, S., Schumacher, L., & Westin, A. M. (2010). The uses and abuses of sovereign credit ratings. Global Financial Stability Report, 10, 85-122. Retrieved on July 23, 2021, from https://is.gd/OwupOb
Korkeamäki, T, Pöyry, S, & Suo, M. (2014). Credit Ratings and Information Asymmetry on the Chinese Syndicated Loan Market." China Economic Review, 31. 1-16. http://dx.doi.org/10.1016/j.chieco.2014.08.001 DOI: https://doi.org/10.1016/j.chieco.2014.08.001
Langohr, H, M., & Langohr, P. (2008). The rating agencies and their credit ratings: what they are, how they work, and why they are relevant. England: John Wiley & Sons.
Liao, HH, Chen, TK., & Lu, CW. (2009). Bank Credit Risk and Structural Credit Models: Agency and Information Asymmetry Perspectives. Journal of Banking & Finance, 33(8).1520-530. https://doi.org/10.1016/j.jbankfin.2009.02.016 DOI: https://doi.org/10.1016/j.jbankfin.2009.02.016
Livingston, M., Naranjo, A., and Zhou, L. (2005). Information asymmetry, bond split ratings, and rating migration. Financial Management Association., 1(35), 22. https://is.gd/1JN7Pv DOI: https://doi.org/10.2139/ssrn.734324
Lugo, S., Croce, A., & Faff, R. (2015). Herding behavior and rating convergence among credit rating agencies: Evidence from the subprime crisis. Review of Finance, 19(4), 1703-1731. https://doi.org/10.1093/rof/rfu028 DOI: https://doi.org/10.1093/rof/rfu028
Markoski, A, S., & Moreira, R. M. (2010). Efeitos do rating soberano brasileiro sobre o Ibovespa: observações entre janeiro de 1994 e junho de 2003. Revista do BNDES, 33, 177-232. http://web.bndes.gov.br/bib/jspui/handle/1408/7381
Moody’s. (2015). Moody's rebaixa rating do Brasil para Baa3 de Baa2; perspectiva é alterada para estável”. www.moodys.com.
Moody’s. (2017). Rating Action: Moody's altera perspectiva do rating de emissor Ba2 do Brasil para estável de negativa. www.moodys.com.
Moody's. (2019). Metodologias de ratings soberanos. Brazil: Moody's Investors Service, 2019. https://is.gd/qHIRgh
Olegario, R. (2009). A Culture of Credit. In: Olegario, R. A Culture of Credit. Harvard University Press.
Park, H., & Yoo, Y. (2019). Differences among Credit Rating Agencies and the Information Environment. Journal of Asian Finance, Economics and Business, 6(2), 25-32. https://doi.org/10.13106/jafeb.2019.vol6.no2.25 DOI: https://doi.org/10.13106/jafeb.2019.vol6.no2.25
Poon, M. (2012). Rating agencies. In: Cetina, K., K., & Preda, A. The sociology of finance. United Kingdom: Oxford University Press. DOI: https://doi.org/10.1093/oxfordhb/9780199590162.013.0015
Rhee, R, J. (2015). Why Credit Rating Agencies Exist. Review of Banking, Finance and Monetary Economics, 44(2):161-76. https://is.gd/Pf8JEj DOI: https://doi.org/10.1111/ecno.12034
Ribeiro, G. (2014). Onde está a credibilidade das agências de rating? Revista Ensaios & Diálogos (7), 58-72. https://is.gd/qGT1YF
Rowlinson, M. (2005). Historical research methods. Research in organizations: Foundations and methods of inquiry. San Francisco, CA: Berett-Kohler Publishers.
Sangiorgi, F., & Spatt, C. S. (2017). The economics of credit rating agencies. Foundations and Trends in Finance, 12, 1-116. http://dx.doi.org/10.2139/ssrn.3055889 DOI: https://doi.org/10.1561/0500000048
Shen, C. H., Huang, Y. L., & Hasan, I. (2011). Asymmetric benchmarking in bank credit rating. Journal of International Financial Markets, Institutions and Money, 22(1), 171-193. DOI: https://doi.org/10.1016/j.intfin.2011.08.004
SEF - Secretaria de Estado da Fazenda. (2018). Sc.gov.br website: https://www.sef.sc.gov.br/transparencia/relatorio/9
Silveira, D. T., & Córdova, F. P. (2009). A pesquisa científica. In: Gerhardt, T. E., & Silveira, D. T. Métodos de pesquisa. Porto Alegre: Editora da UFRGS.
Solomon, P., & Draine, J. (2010). An overview of quantitative research methods. In: Thyer, B. The Handbook of Social Work Research Methods. SAGE publications. DOI: https://doi.org/10.4135/9781544364902.n2
Espeland, W. N., & Stevens, M. L. (1998). Commensuration as a social process. Annual Review Sociology, 313-342. DOI: https://doi.org/10.1146/annurev.soc.24.1.313
Standards & Poor's. (2016). Brazil Long-Term Ratings Lowered To 'BB' On Significant Political And Economic Challenges; Outlook Negative. www.standardandpoors.com/ratingexpress.
Standards & Poors. (2017). Metodologias de ratings soberanos. S&P Global Ratings. https://is.gd/K2cfgt.
Tang, T, T. (2009). Information asymmetry and firms' credit market access: Evidence
from Moody's credit rating format refinement. Journal of Financial Economics, 93(2), 325. https://doi.org/10.1016/j.jfineco.2008.07.007 DOI: https://doi.org/10.1016/j.jfineco.2008.07.007
Tesouro Nacional. (2022). Histórico da Classificação para a Dívida de Longo Prazo. https://sisweb.tesouro.gov.br/apex/f?p=2810:2:0:
Thomlison, B. (2001). Descriptive studies. In: Thyer, B. The Handbook of Social Work Research Methods. Florida State University, USA, SAGE Publications, Inc. DOI: https://doi.org/10.4135/9781412986182.n7
White, L. J. (2009). A brief history of credit rating agencies: How financial regulation entrenched this industry's role in the subprime mortgage debacle of 2007–2008. Mercatus on Policy, 59. https://is.gd/OfcDFx
White, L. J. (2010). Markets: The credit rating agencies. Journal of Economic Perspectives, 24(2), 211-26. https://doi.org/10.1257/jep.24.2.211 DOI: https://doi.org/10.1257/jep.24.2.211
White, L. J. (2011). The credit-rating agencies and the subprime debacle. In: Friedman, J. What Caused the Financial Crisis. University of Pennsylvania Press.
White, L. J. (2018). The credit rating agencies and their role in the financial system. In: Brousseau, E, et al. Oxford Handbook on Institutions, International Economic Governance, and Market Regulation. Oxford University Press. DOI: https://doi.org/10.1093/oxfordhb/9780190900571.013.38
Downloads
Published
How to Cite
Issue
Section
License
The authors hold the copyright to their article and grant the Journal of Accounting, Management and Governance the exclusive rights of first publication (including communication to the public and reproduction), with the work simultaneously licensed under the Creative Commons Attribution Non-Commercial 4.0 International License (CC BY-NC).
This license allows third parties to remodel, adapt, and create from the published work, as long as it is for non-commercial purposes, giving due credit for authorship and initial publication in this journal.
Authors are permitted to enter into additional separate agreements for non-exclusive distribution of the version of the work published in this journal (e.g., publish in an institutional repository, on a personal website, publish a translation, or publish a book chapter), with acknowledgment of authorship and initial publication in this journal, provided there is no commercial use/distribution.
