Accounting Seminar（2015-13）

Topic:Banks’ Accounting Conservatism and Credit Rating Differences

Speaker:Mei Cheng(The University of Arizona)

Time:Friday,05 June, 10:00-11:30 am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting,MPAcc GSM, PKU

Abstract：

For a sample of bank bonds, we find that Standard & Poor’s (S&P) consistently issues more unfavorable ratings than Moody’s Investors Service (Moody’s). When testingpossible explanations, we do not find that the two rating agencies’ assignment of different weights to the same factors explains the pattern of S&P’s relatively unfavorable ratings. Instead, we find that banks exhibiting greater accounting conservatism as reflected through timelier loan loss provisions experience areduced frequency and magnitude of unfavorable ratings from S&P compared to Moody’s. We also find that the effect of accountingconservatism inmitigating S&P’s relatively unfavorable ratings is more pronounced when banks have internal control weaknesses and less debt monitoring. Our paper provides new insights that information asymmetry is a significant driver of lopsided rating disagreement for bank holding companies.

Your participation is warmly welcomed!