An empirical analysis of changes in credit rating properties:
Timeliness, accuracy and volatility
, Monica Neamtiu
The University of Arizona, Tucson, AZ 85721, USA
Received 8 March 2007
Received in revised form
24 September 2008
Accepted 6 November 2008
Available online 25 November 2008
In recent years, credit rating agencies have faced increased regulatory pressure and
investor criticism for their ratings’ lack of timeliness. This study investigates whether
and how rating agencies respond to such pressure and criticism. We ﬁnd that the rating
agencies not only improve rating timeliness, but also increase rating accuracy and
reduce rating volatility. Our ﬁndings support the criticism that, in the past, rating
agencies did not avail themselves of the best rating methodologies/efforts possible.
When their market power is threatened by the possibility of increased regulatory
intervention and/or reputation concerns, rating agencies respond by improving their
& 2008 Elsevier B.V. All rights reserved.
I am troubled by the extreme concentration in this [credit rating] industry. Two ﬁrms control the vast majority of
market share. To put it mildly, this is not an efﬁcient market with robust competition. Rather, it has been identiﬁed,
accurately I might add, as a ‘duopoly,’ a ‘shared monopoly,’ and a ‘partner monopoly.’
Michael G. Oxley, 2005, House Financial Services Committee Chairman
In recent years, the nationally recognized credit rating agencies (e.g., Moody’s, Standard and Poor’s (S&P), and Fitch)
have faced widespread criticism for their credit ratings’ lack of timeliness in predicting some high-proﬁle bankruptcies.
These rating agencies maintained investment-grade ratings for Enron, California utilities, and other bankrupt companies,
days before each declared bankruptcy.
Contents lists available at ScienceDirect
journal homepage: www.elsevier.com/locate/jae
Journal of Accounting and Economics
ARTICLE IN PRESS
0165-4101/$ - see front matter & 2008 Elsevier B.V. All rights reserved.
We thank Dan Bens, Dan Dhaliwal, Dan Givoly, Adam Kolasinski (discussant), Thomas Lys (editor), Karl Muller, Mark Soliman (referee),
K.R. Subramanyam, Bill Waller, Hal White, and seminar participants at the University of Arizona, the AAA 2007 Annual Meeting, the JAE 2007 Conference
and the FARS 2008 Meeting for their valuable comments and suggestions.
E-mail addresses: email@example.com (M. Cheng), firstname.lastname@example.org (M. Neamtiu).
Before 2001, there were only three nationally recognized rating agencies: Moody’s, S&P, and Fitch. Since 2001, the SEC also granted nationally
recognized status to Dominion Bond Rating Service and A.M. Best Co.
Journal of Accounting and Economics 47 (2009) 108–130