Slow ratings

Rating agencies came under heavy scrutiny following the Önancial crisis for being slow in updating the oustanding ratings making information in ratings stale. In this paper, we show that rating agencies were fully informed about the changes in the credit quality of the issuers yet chose to delay the update of outstanding ratings. First we show that equity analysts anticipate changes in ratings up to 6 months before the actual rating action. Secondly, we show that the same anticipation is found in ratings privately distributed at a cost by Moodyís to private investors (Moodyís Implied Ratings). These results show that ratings do not convey fundamental information while still serving as credit quality certiÖcation devices that drive the asset allocation of regulation-constrained investors. In order to minimize shocks in constrained investors portfolios, rating agencies delay the release of updates to allow reallocations before actual revisions. The role of rating agencies is therefore revised from information providers to coordination mechanisms.