We compare key CDO assumptions from two departments within the same rating agency but with different financial incentives. Assumptions made by the ratings division are more favorable than those by the surveillance department. The differences are not explained by collateral switching during the...

We examine whether "rating shopping" or "rating catering" is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more...

Analyzing 916 CDOs, we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to 12.1% larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model-implied...

We examine whether “rating shopping” or “rating catering” is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs) prior to the credit crisis. Although investors paid a premium for dual-ratings, AAA CDO tranches rated by both...