Are Credit Rating Agencies Useless? The Role of Rating Agencies in European Bond Markets : Information Transmission vs. Spread Stabilization

Thanks to an analysis of structural changes in abnormal spread series, we stress specific investors' reactions to rating actions. These reactions are much more usual when the issues are in sterlings than in euros. When reacting in the euro area, investors mainly react after banks' and public issuers' downgrading but before corporate issuers' downgrading. If rating agencies transmit information about banks' default risk, we cannot say they are useless for European corporate issuers. Among these issuers, their function is to confirm (or not) the informed investors' perception of default risk, and, in doing so, to stabilize (or not) the bond spreads