Information asymmetry and credit rating: A quasi-natural experiment from China

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)


We examine how the issuer-paid incumbent credit rating agencies (CRAs) in China adjust their rating strategies in response to the 2010 entry of an independent credit rating agency, China Bond Rating (CBR) between 2006 and 2015. The business model that CBR employs is a combination of the public utility model and the investor-paid model. We find that the CBR's ratings coverage effectively reduced the information asymmetry in the Chinese corporate bond market. The evidence shows decreased ratings inflation and increased informativeness of rating change announcements by incumbent issuer-paid CRAs after CBR entered the market. The findings suggest that a firm's credibility is an important channel driving issuer-paid incumbent CRAs’ strategic ratings. Our paper provides new information and insight into the debate of whether CRAs with alternative business models can alleviate the information asymmetry problem.
Original languageEnglish
Pages (from-to)132-152
Number of pages21
JournalJournal of Banking and Finance
Early online date11 Jun 2019
Publication statusPublished - Sep 2019


  • Credit ratings
  • Information asymmetry
  • Ratings quality
  • Investor-paid model
  • Public utility model


Dive into the research topics of 'Information asymmetry and credit rating: A quasi-natural experiment from China'. Together they form a unique fingerprint.

Cite this