Does Regulatory Certification Affect the Information Content of Credit Ratings?

We exploit an investor-paid rating agency's designation as a Nationally Recognized Statistical Rating Organization (NRSRO) to test whether this certification affects the agency's information production. We use a certified issuer-paid agency as a benchmark and find robust evidence that the investor-paid agency's ratings policy-both timelier and more symmetric with respect to positive and negative information-persists after it became certified for regulatory compliance. Our results suggest that ratings policy is more a function of rating agency compensation structure than the NRSRO certification by the U.S. Securities and Exchange Commission.