Abstract
This paper studies the effect of domestic credit rating agencies’ global penetration on domestic bond markets. The empirical evidence shows a significant positive effect of the opening of the first agency on domestic bond markets using cross-country analysis over a period that spans from 1990 to 2006. The positive effect is driven by the interaction between the agency’s activity and financial policies aimed at spurring securities’ markets, while it is not due to self-selection of domestic agencies into certain countries. Finally, countries with a larger number of domestic credit rating agencies show larger domestic bond markets in middle income economies but not in high income ones. Results suggest that domestic credit rating agencies may exert an important economic role in countries with less advanced financial markets.
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