Excerpt
Issuer Default Risk and Rating Agency Conflicts. Anywhere Sikochi, April 2018, Paper, "This study examines whether rating agencies assign more stringent and accurate rating adjustments for issuers with higher default risk and whether this leads to adjustments that are more relevant to financial markets. We expect that rating agencies will make more informative subjective adjustments to limit their reputational risk for issuers with a higher likelihood of default—an event that can reveal the quality of assigned ratings. For defaulting issuers, especially those with a higher pre-failure default risk, we find that adjustments grow more stringent and accurate in the months leading up to default and better predict lender default recovery rates."