How do self-fulfilling prophecies affect financial ratings? An experimental study

Celjo-Hörhager, Sanela ; Niessen-Ruenzi, Alexandra

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Document Type: Working paper
Year of publication: 2006
The title of a journal, publication series: CFR Working Paper
Volume: 06-13
Place of publication: Köln
Publishing house: Centre for Financial Research
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Publication language: English
Institution: Business School > ABWL u. Corporate Governance (Niessen-Ruenzi 2012-)
Subject: 650 Management
Abstract: In this experimental study we examine the impact of self-fulfilling prophecies on financial ratings. According to theoretical models like Kuhner (2001), rating agencies are more likely to reveal their private information if their rating can not become self-fulfilling from an ex-post point of view. In our experiment we use two settings in which ratings differ with respect to the degree of their self-fulfilling impact. In connection with a strong self-fulfilling impact of ratings we indeed observe that agencies are more likely to assign ratings which are not in line with their private information. Our results support theoretical findings of Kuhner (2001). However, the pathological equilibrium predicted by the theoretical model does not emerge in our experiment.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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