Rating opaque borrowers: why are unsolicited ratings lower?

This paper examines why unsolicited ratings tend to be lower than solicited ratings. Bothself-selection among issuers and strategic conservatism of rating agencies may be reasonableexplanations. Analyses of default incidences of non-U.S. borrowers between January 1996and December 2006 show that rating conservatism may play a role for industrial firms, butself-selection cannot be fully rejected. Neither can it for insurance companies, though datarestrictions impede further conclusions. For unsolicited bank ratings, however, we find strongevidence that rating conservatism is an important cause. The downward bias also appears toincrease along with banks’ opaqueness.