Introducing foreign credit rating agency in China: Enhancing reputation or aggravating conflicts of interests?

This paper investigates the impact of China's openness policy for the credit rating industry on credit ratings by domestic credit rating agencies (CRAs). Our findings demonstrate that the introduction of foreign CRAs reduces credit rating levels by domestic CRAs. Heterogeneity tests show that this effect is more pronounced when the issuers are small or unlisted, the CRA's market share is lower, or the underwriter's reputation is lower. Finally, openness to foreign CRAs can enhance the information content of credit ratings by domestic CRAs. Our results illustrate that openness to foreign CRAs enhances the reputation concerns of domestic CRAs.