Credit rating agencies have been widely criticized to issue inflated ratings due to the issuer-pay business model. This paper analyzes the corporate bond rating standards and tests whether reputation concerns are powerful enough to discipline the rating agencies. Through a simple theoretical...

We show that rating agencies have become more conservative in assigning credit ratings to corporations over the period 1985 to 2009. Holding firm characteristics constant, average ratings have dropped by three notches (e.g., from A to BBB ) over time. Consistent with the view that this change...