Production of Information in the Credit Market: Evidence From a Public Intervention

Abstract

We study how corporate credit ratings produced by a central bank and available to banks influence credit allocation. We exploit a refinement of this rating information, which makes some firms receive a positive rating surprise and discloses the central bank s private information on borrowers. We show that affected firms enjoy greater and cheaper access to bank credit, especially when they are informationally opaque and lenders are less informed. Furthermore, firms receiving the rating surprise start new bank relationships more easily and invest more. We conclude that these ratings reduce information asymmetries, and improve the functioning of the credit market.