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Cambridge Journal of Economics Advance Access published online on August 17, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep049
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

The role of rating agencies in financial crises: event studies from the Asian flu

Makram El-Shagi*

* Halle Institute of Economic Research and University of Mannheim, Germany

Address for correspondence: Halle Institute for Economic Research, P.O.B. 11 03 61, D-06107 Halle (Saale), Germany; email: elshagi{at}rumms.uni-mannheim.de

Based on case studies from countries that have been hit hardest by the Asian financial crisis of 1997, the present paper shows that the accusation that sovereign ratings led to a severe acceleration of the crisis is unconvincing and that the empirical method often used to support accusations against rating agencies is inappropriate for the problem under analysis. Rather, it must be emphasised that ratings were downgraded in most countries very shortly before the end of the crisis. In some countries, the ratings were even further downgraded after the end of the crisis as countries started to recover. This is not in line with the thesis that the crisis was accelerated by rating agencies.

Key Words: Credit ratings • Financial crisis

JEL classifications: G24, F32

Manuscript received July 23, 2008; final version received June 24, 2009.


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