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There has been heated debate regarding credit-rating agencies' (CRAs') reporting accuracy of corporate credit ratings, which is essential for investors because they rely on those crediting ratings to make investment decisions. We estimate the reporting accuracy using the data on corporate...
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: some argue that they engage in rating inflation, while others suggest that they deflate ratings. This article offers a … rationale that reconciles the two opposite arguments. We find that both rating inflation and rating deflation can occur in … equilibrium. Furthermore, we show that credit rating is procyclical: rating inflation is more likely to happen in a boom while …
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