Foreign ownership and the credibility of national rating agencies: Evidence from Korea

By analyzing bond price reactions to rating changes in Korea, this study adds a new angle to the existing literature on Global Rating Agencies (GRAs, i.e. Moody's, S&P's, Fitch) with higher reputation/independence vs. National Rating Agencies (NRAs) with more in-depth local knowledge. Faced with substantial regulatory burdens, GRAs have chosen to operate indirectly in the Korean domestic market by acquiring local NRAs. In our event study, cumulative abnormal returns following downgrades by a wholly domestically owned NRA tend to dominate those from downgrades by two affiliates of GRAs. This casts doubt on the additional information value of reputation capital acquired through GRA ownership as perceived by emerging markets. Journal of Comparative Economics 41 (3) (2013) 762-776. Department of Economic, Political Sciences and of Modern Languages, LUMSA, Via Pompeo Magno, 22, 00192 Rome, Italy; Department of Economics and Mathematics, University of Bad Aldo Moro, Via C. Rosalba, 53, 70124 Bad, Italy; Graduate School of International Studies, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 120-749, Republic of Korea. (C) 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.