The Influence of Credit Rating Fee on Rating Quality: Based on the Annual Report of CRAs
LIAN Lishuai, HUANG Xiaolin, CHEN Guanting, SHEN Jiaying
School of Economics and Management, East China Normal University; School of Management, Minzu University of China; Research Center for Smart Audit of SEM, Tsinghua University; Human Resources and Social Security Information Center of Kunshan City, Jiangsu Province
Summary:
Since a higher credit rating can reduce financing costs, the issuer may have an incentive to ask the rating agency to raise the credit rating. And in many cases, it is inflated above the reasonable rating level determined based on its solvency, etc., that is, credit rating inflation. Especially under the current issuer-paid model, it is difficult for credit rating agencies to maintain complete independence, and often issue inflated credit ratings in order to obtain higher rating fees in accordance with the requirements of bond issuers, which is called credit rating catering. In Chinese bond market, although from the 2006 “Administrative Measures for the Issuance of Securities by Listed Companies” to the “Interim Measures for Administration of Credit Rating Business at Securities Market” in 2019, the credit rating supervision policies have become more and more detailed, but the problem of credit rating inflation or inflated rating still plagues our country's bond rating market. The statistical results of this paper show that from 2010 to 2022, more than 80% of bond-issuing companies have obtained an AA or higher entity credit rating. Companies such as China Forestry Group, Shanghai Shimao, Yong Coal Holdings and Brilliance Auto, which have experienced bond defaults in recent years, were still issued AAA ratings before their bonds defaulted, indicating that there is a serious credit rating inflation phenomenon in practice. According to the explanation of credit rating catering, the main purpose of rating agencies giving up independence is to obtain excess returns through rating fees. However, at present, credit rating regulators in developed countries or regions such as the United States do not require rating agencies or bond issuers to disclose commercial credit bond rating fees, and only municipal bond rating fees are concerned about rating fees (Cornaggia et al., 2023), and in China, rating fee data wasn't required to be disclosed mandatorily in practice before 2013. Due to the non-disclosure of rating fee information, and based on the difference between municipal bonds and commercial bonds, existing studies have not clearly revealed the relationship among credit bond rating fees, credit rating inflation, and credit rating quality. On January 8, 2013, the National Association of Financial Market Institutional Investors issued the “Self-regulatory Guidelines on Credit Rating of Non-Financial Enterprise Debt Financing Instruments”, requiring credit rating agencies to annually publish last year's “Credit Rating Business Development and Compliance Operation Report” (hereinafter referred to as the “Annual Report”) before April 30 in the following year. The annual reports of each rating agency disclose the rating income information of various rating businesses, which provides a feasible research opportunity for directly examining the problem of credit rating inflation. Based on the rating income information released in the annual reports of our country's credit rating agencies from 2013 to 2022, this paper finds that high rating fees, especially the high fee deviation, lead to credit rating inflation and corresponding rating quality decline. The heterogeneity study found that among large credit rating agencies, the above tendencies converged when the degree of industry competition was low, the rating agencies were involved in bond defaults, and after the implementation of the Interim Measures for Administration of Credit Rating Business at Securities Market. The problem of low rating quality caused by the deviation of rating fees and high fees has converged. Finally, this paper also finds that there are situations where the fee is lower but the rating agency also issues a relatively high rating. The main contributions of this paper are as follows: First, based on the institutional background of credit rating agencies disclosing Annual Report, it provides clearer and more direct empirical evidence on how rating fees affect credit rating inflation and credit rating quality, and enriches the theoretical explanation and literature of credit rating catering. Second, using the data of China's credit rating market, this paper finds that in the case of a fierce credit rating market and a limited role of reputation mechanism, competition will only aggravate the pandering behavior of rating agencies, resulting in more serious credit rating inflation, which provides a new explanation for the relationship between competition and reputation. Third, from the perspective of bond defaults and the impact of credit rating supervision policies on the reputation of rating agencies, this paper finds that government supervision will inhibit credit rating inflation, which provides new analytical dimensions and empirical evidence for revealing the relationship between government supervision and credit rating and its impact mechanism.
连立帅, 黄小琳, 陈关亭, 沈佳瑛. 信用评级收费与评级质量——基于评级机构年度报告的证据[J]. 金融研究, 2025, 543(9): 188-206.
LIAN Lishuai, HUANG Xiaolin, CHEN Guanting, SHEN Jiaying. The Influence of Credit Rating Fee on Rating Quality: Based on the Annual Report of CRAs. Journal of Financial Research, 2025, 543(9): 188-206.
[1]陈关亭、连立帅和朱松,2021,《多重信用评级与债券融资成本——来自中国债券市场的经验证据》,《金融研究》第2期,第94～113页。 [2]陈关亭和朱松,2021,《评级行业竞争与信用评级水平——基于中国信用债市场的证据》,《金融学季刊》第4期,第1～25页。 [3]黄小琳、朱松和陈关亭,2017,《债券违约对涉事信用评级机构的影响——基于中国信用债市场违约事件的分析》,《金融研究》第3期,第130～144页。 [4]寇宗来、盘宇章和刘学悦,2015,《中国的信用评级真的影响发债成本吗?》,《金融研究》第10期,第81～98页。 [5]寇宗来、千茜倩和陈关亭,2020,《跟随还是对冲:发行人付费评级机构如何应对中债资信的低评级?》,《管理世界》第9期,第26～36页。 [6]林晚发、何剑波、周畅和张忠诚,2017,《“投资者付费”模式对“发行人付费”模式评级的影响:基于中债资信评级的实验证据》,《会计研究》第9期,第62～68+97页。 [7]林晚发、钟辉勇、赵仲匡和宋敏,2022,《金融中介机构竞争的市场反应——来自信用评级机构的证据》,《金融研究》第4期,第77～96页。 [8]孟庆斌、张强、吴卫星和王宇西,2018,《中立评级机构对发行人付费评级体系的影响》,《财贸经济》第5期,第53～70页。 [9]吴育辉、翟玲玲、张润楠和魏志华,2020,《“投资人付费”vs.“发行人付费”:谁的信用评级质量更高?》,《金融研究》第1期,第130～149页。 [10]吴育辉、张腾、唐浩博和张榕杰,2024,《惩一儆百:评级机构受罚的威慑效应》,《世界经济》第5期,第178～202页。 [11]姚红宇,2019,《评级机构声誉机制与评级上调——来自中国信用评级的证据》,《经济学报》第2期,第125～154页。 [12]Bae, K. H., Kang, J. K. and Wang, J., 2015. “Does Increased Competition Affect Credit Ratings? A Reexamination of The Effect of Fitch's Market Share on Credit Ratings in the Corporate Bond Market”, Journal of Financial and Quantitative Analysis, 50(5): 1011～1035. [13]Bar-Isaac, H., and Shapiro, J., 2013. “Ratings Quality over the Business Cycle”, Journal of Financial Economics, 108(1):62～78. [14]Becker, B., and Milbourn, T., 2011. “How Did Increased Competition Affect Credit Ratings”, Journal of Financial Economics, 101(3): 493～514. [15]Behr, P., Kisgen, D., and Taillard, J., 2018. “Did Government Regulations Lead to Inflated Credit Ratings”, Management Science, 64(3): 1034～1054. [16]Bolton, P., Freixas, X. and Shapiro, J., 2012. “The Credit Ratings Game”, Journal of Finance, 67(1): 85～111. [17]Cornaggia, J., K. Cornaggia, and R. Israelsen, 2023. “Rating Agency Fees: Pay to Play in Public Finance?”, Review of Financial Studies, 36(5): 2004～2045. [18]Frenkel, S., 2015. “Repeated Interaction and Rating Inflation: A Model of Double Reputation”, American Economic Journal: Microeconomics, 7(1): 250～280. [19]Griffin, J., J. Nickerson, and, D. Tang, 2013. “Rating Shopping or Catering? An Examination of the Response to Competitive Pressure for CDO Credit Ratings”, Review of Financial Studies, 26(9): 2270～2310. [20]Hirth, S., 2014. “Credit Rating Dynamics and Competition”, Journal of Banking and Finance, 49: 100～112. [21]Jiang, J., M.H. Stanford, and Y. Xie, 2012. “Does It Matter Who Pays for Bond Ratings? Historical Evidence”, Journal of Financial Economics, 105(3): 607～621. [22]Kisgen, D.J., 2006. “Credit Ratings and Capital Structure”, The Journal of Finance, 61(3): 1035～1072. [23]Klein, B., and K.B. Leffler, 1981. “The Role of Market Forces in Assuring Contractual Performance”, Journal of Political Economy, 89(4): 615～641. [24]Kraft, P., 2015. “Do Rating Agencies Cater? Evidence from Rating-Based Contracts”, Journal of Accounting and Economics, 59(2-3): 264～283. [25]Mathis, J., J. Mcandrews, and J.C. Rochet, 2009. “Rating the Raters: Are Reputation Concerns Powerful Enough to Discipline Rating Agencies”, Journal of Monetary Economics, 56(5): 657～674. [26]Sangiorgi, F., and C. Spatt, 2017. “Opacity, Credit Rating Shopping, and Bias”, Management Science, 63(12): 4016～4036. [27]Skreta, V., and L. Veldkamp, 2009. “Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation”, Journal of Monetary Economics, 56(5): 678～695.
