This paper investigates the incentive of credit rating agencies (CRAs) to bias ratings using a semiparametric, ordered-response model. The proposed model explicitly takes conflicts of interest into account and allows the ratings to depend flexibly on risk attributes through a semiparametric...

This paper develops a semiparametric, ordered-response model of credit rating in which ratings are equilibrium outcomes of a stylized cheap-talk game. The proposed model allows the choice probability to be an unknown function of multiple indices permitting flexible interaction, non-monotonicity,...

Credit Rating Agencies (CRAs) adjust preliminary bond ratings with knowledge beyond publicly available information. These unobserved "soft adjustments" may reflect material non-public information and rating biases due to conflicts of interest, making certain bond characteristics endogenous. We...