infonet-economy

We empirically investigate why issuers solicit and pay for multiple ratings not only at issuance but also during the monitoring phase of a debt instrument. Using monthly credit rat-ing migration data from Fitch, Moody's and Standard & Poor's on all U.S. residential mort-gage-backed securities from 1985 to 2012 ever rated (154'600 individual tranches), our results provide empirical evidence that rating agencies put more effort in rating and outlook revisions when tranches have assigned multiple ratings. Further, we demonstrate that in the case of multiple ratings, agencies do a better job in discriminating tranches with respect to default risk. Our results contribute to the literature on information production of credit ratings and extend the perspective to the monitoring period after issuance. We also show that in case of multiple ratings, Moody's on average provides the most conservative credit assessment and that this relative pattern remains consistent over a tranche's lifetime.