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Financial Innovation

Table 6 Rating difference between Moody’s and EJR and default risk

From: Detecting conflicts of interest in credit rating changes: a distribution dynamics approach

 

(1)

(2)

(3)

(4)

LOWEREJR

0.00

   
 

(0.27)

   

LOWEREJRCCC

 

− 0.01

  
  

(− 0.21)

  

THRESHOLD

  

0.01

 
   

(0.48)

 

Baa3

   

− 0.00

    

(− 0.17)

SIZE

− 0.05

− 0.05

− 0.05

− 0.05

 

(− 2.43)**

(− 2.44)**

(− 2.44)**

(− 2.45)**

LEV

0.16

0.16

0.16

0.16

 

(2.52)**

(2.52)**

(2.54)**

(2.53)**

PROFIT

− 1.12

− 1.13

− 1.12

− 1.12

 

(− 5.08)***

(− 5.07)***

(− 5.07)***

(− 5.06)***

LEVVOL

0.23

0.23

0.23

0.23

 

(1.41)

(1.41)

(1.41)

(1.41)

RETSD

3.23

3.23

3.22

3.23

 

(3.78)***

(3.78)***

(3.76)***

(3.78)***

Constant

0.41

0.41

0.40

0.41

 

(2.09)**

(2.09)**

(2.09)**

(2.09)**

Moody's rating dummy

Yes

Yes

Yes

Yes

Year dummy

Yes

Yes

Yes

Yes

Number of observations

36,388

36,388

36,388

36,388

R-squared

0.695

0.695

0.695

0.695

  1. The dependent variable is the expected default frequency (EDF) of an issuer in a month. The control variables include firm total assets (SIZE), leverage ratio (LEV), operating profitability (PROFIT), the volatility of leverage ratio (LEVVOL) and the standard deviation of stock return (RETSD). These variables have consistent signs, magnitudes and statistical significance of coefficients. The dummies of Moody’s ratings in each rating grade and year dummies are also included in the regression models. t-statistics are in parentheses
  2. *, **, and ***Correspond to statistical significance at the 10%, 5%, and 1% levels, respectively
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