DID MARKET REFORM MAKE RISK EVALUATION ON JAPANESE FIRMS EASIER?: AN EVIDENCE FROM CREDIT RATINGS

If other things be constant, more extensive and timely disclosure should result in more accurate evaluation of firm's risks. However, there is a lack of research that investigates how effective various reforms in disclosure regulation is in terms of evaluating corporate risks. This lack of research is mainly because there are not appropriate data sets and methodology to be used for empirical tests. We follow Morgan (2002) and investigate whether credit rating companies likely agreed on the evaluation on Japanese firms' risks after the financial and accounting Big Bang. If there are still large disagreements among credit rating companies, this fact suggests that the current disclosure is not enough for outsiders to evaluate firms, or that there is an inherent limitation of disclosure usage. Also, we are interested in what sectors credit rating companies more often disagree on. Contrary to Morgan (2002), which pointed out that financial industries, such as banks and insurance companies, are difficult to evaluate, we failed to find that disagreements among credit rating companies over banks and insurance companies are larger than disagreements over other industries. However, consistent with Morgan (2002), we found that public utilities industry is easy to evaluate.