Seminar (Dept. of Finance)

Title: The Role of Credit Rating Purchases in S&P 500 Membership Decisions

Speaker: Xin Liu, Senior Lecturer, Australian National University

Time: 10:00-11:30, Nov 17, 2023(Friday)

Venue: Room 1008, Mingde Business Building

ABSTRACT:

Many applications in empirical macroeconomics and finance assume that S&P500 index is objectively constructed. Its membership decisions in fact have a nontrivial amount of discretion. We show that firms’ purchases of S&P ratings appear to improve their chance of entering the index (but purchases of Moody’s ratings do not). Furthermore, firms tend to purchase more S&P ratings when there are openings in index membership. This is also confirmed by an event study of a 2002 membership rule change. Finally, discretionary additions exhibit worse subsequent stock return performance relative to rules-based additions.

SHORT BIOGRAPHY:

Dr. Xin Liu is a Senior Lecturer in Finance. Her research interests are centered on the implications of financial innovation and developments on capital markets and the economy, banking and information economics, and the Chinese economy. Dr Liu's work has been published in the Journal of Financial Economics and Journal of Financial and Quantitative Analysis.