Does the Nationally Recognized Statistical Rating Organization certification matter for Japanese credit rating agencies?

Abstract

The SEC’s NRSRO designation for Japanese credit rating agencies is suitable for examining certification and monitoring effects, as Japanese domestic bond markets are not subject to SEC regulations. We find that the certification increased the market share of new NRSROs compared to that of incumbent NRSROs. Moreover, bond issues rated by newly certified NRSROs obtained lower yields and their ratings became relatively more informative for predicting the yield spread after the NRSRO designation. Our findings suggest that the NRSRO designation enhances the reputation of newly certified NRSROs and the value of their ratings information.