Large shareholders and credit ratings

Simi Kedia, Shivaram Rajgopal, Xing Alex Zhou

Research output: Contribution to journalArticlepeer-review

35 Scopus citations


This paper addresses regulatory concerns that large shareholders of credit rating agencies can influence the rating process. Unlike Standard & Poor's, which is a privately held division of McGraw-Hill, Moody's is a public company listed on the NYSE. From 2001 to 2010, Moody's has two shareholders, Berkshire Hathaway and Davis Selected Advisors, which collectively own about 23.5% of Moody's. Moody's ratings on bonds issued by important investee firms of these two stable large shareholders are more favorable relative to S&P, as well as Fitch, ratings. We exploit Moody's initial public offering in 2000 to address endogeneity and to mitigate concerns that the results are driven by issuer characteristics or by the greater informativeness of Moody's ratings. S&P's parent, McGraw-Hill, has a large shareholder for much less time, and some weak evidence exists that S&P ratings are relatively more favorable toward the owners of McGraw-Hill. These findings are consistent with regulatory concerns about the ownership and governance of rating agencies, especially those that are publicly listed.

Original languageEnglish (US)
Pages (from-to)632-653
Number of pages22
JournalJournal of Financial Economics
Issue number3
StatePublished - Jun 2017

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


  • CMBS
  • Conflict of interest
  • Corporate bond
  • Credit rating agencies
  • Difference-in-differences
  • Moody's
  • Ownership structure


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