Abstract
We investigate a prominent allegation in Congressional hearings that Moody’s loosened its standards for assigning credit ratings after it went public in the year 2000 in an attempt to chase market share and increase revenue. We exploit a difference-in-difference design by benchmarking Moody’s ratings with those assigned by its rival SP (ii) firms that are more likely to benefit from higher ratings, on the margin; and (iii) in industries with greater competition from Fitch. Moody’s higher ratings, post IPO, are also less informative when accuracy is measured as expected default frequencies (EDFs) or as the likelihood of bond defaults. Our findings have implications for incentives created by a public offering for capital market gatekeepers and professional firms.
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