Credit Rating Agencies Boost Emerging Markets

Coverage of the 2010 Risk Management Conference.

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gold chinaThe reputation of credit rating agencies has taken a major hit in the wake of both the collapse of Enron and more recently of major institutions like Lehman Brothers. Dr. Lynette Purda, associate professor of finance, Queen’s University School of Business looks at the role of credit ratings in emerging markets to show that they can still have a positive impact on the quality of information being produced by issuers. Her research shows that accounting quality and financial disclosures of emerging markets firms improves as a result of its rating by a western credit rating agency such as Moody’s or Standard and Poor’s. Purda concludes that as a result of credit ratings, the firms appear to be motivated to change their accounting and the market is reacting positively. Hence U.S. based ratings are good for those emerging markets firms and the markets they operate. However, Purda notes, those benefits are likely to diminish over time.

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