Credit ratings and liquidity crises

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This paper examines the effects of information dissemination by a credit rating agency (CRA) on a liquidity crisis. In our proposed model, the CRA and creditors share public information on a firm's repayment ability. In addition, the CRA and creditors obtain noisy private information about the firm. After receiving its private information, the CRA announces it to creditors along with its opinion. We find that the probability of the firm having a liquidity crisis does not always decrease with the accuracy of the CRA's information. Moreover, if the CRA has reputation concerns, CRA opinions that contain inaccurate information rely more on the market prior.
Publisher
WILEY
Issue Date
2021-09
Language
English
Article Type
Article
Citation

INTERNATIONAL JOURNAL OF ECONOMIC THEORY, v.17, no.3, pp.309 - 324

ISSN
1742-7355
DOI
10.1111/ijet.12230
URI
http://hdl.handle.net/10203/287213
Appears in Collection
MT-Journal Papers(저널논문)
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