Title: Reliability and credibility of credit rating - evidence from Indian CRAs

Authors: Manisha Kumari; V. Mary Jessica

Addresses: School of Management Studies, University of Hyderabad, India ' School of Management Studies, University of Hyderabad, India

Abstract: The quality of rating given by the credit rating agencies (CRAs) have been questioned for a long time and also criticised for the same. Mandatory bond rating and financing of 25% capital through bond motivates to carry out this study. The objective of this paper is to examine the reliability of rating given by CRAs by predicting the rating through market-based information. An ordered probit model is used to predict the rating. The sample consists of BSE500 firms from 2014 to 2019, extracted from the ProwessIQ CMIE database. The results show that issuers in India have been enjoying a very high rating compared to firms in the USA, and the difference between predicted ratings and actual rating given by CRAs is more in India. As per the results, the actual rating is high compared to predicted ratings. The implication of the study suggests that regulators need to tighten the functioning and working process of CRAs. This will help in strengthening the weak bond market of India.

Keywords: bond rating; risk; reliability; default; credibility; accuracy.

DOI: 10.1504/IJEPEE.2022.124658

International Journal of Economic Policy in Emerging Economies, 2022 Vol.16 No.1, pp.27 - 39

Received: 26 Mar 2020
Accepted: 05 May 2020
Published online: 01 Aug 2022 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article