Research Of Rating Agency’s Decisions On The Credit Rating Market And Empirical Analysis Of Implicit Guarantee

Bond market as a major financing market is an important component of the financial industry. The history of the development of China’s bond market is short. There are many problems in China’s bond market. The bond market turmoil in 2013 exposed several problems in China’s bond market such as overestimated credit rating, implicit guarantee, lack of regulation. Among these problems, overestimated credit rating and implicit guarantee are undoubtedly of great importance. The purpose of this paper is try to analyze the origin and effect of the two problems and also give some advices to resolve the problemsThis paper analyze the decisions of the rating agencies when rating agencies facing a situation of gaming between rating agencies, investors and bond issuers under the assumption by repeated game theory. In the analysis the rating market is divided into several situations:only one rating agency in the market; two rating agencies in the market that agencies don’t need to public unselected rating information; two rating agencies in the market that agencies need to public unselected rating information. Meanwhile, this paper uses a measurement method to measure the effect of implicit guarantee on the issue rate of bonds. The data is all issuing bonds before the bond market turmoil and after the bond market turmoil.This study shows that the greater the probability that the good bond market and the greater the probability of default of the bad bond, the rating agencies will tend to truthfully evaluate bond rating level. When there are competitions between rating agencies on the market, different discount rates will affect the final equilibrium strategy of rating agencies. When there are more than one rating agencies in the market, rating agencies that are requested to public unselected information are more inclined to tell the truth. The empirical study shows that the effect of implicit guarantees on issue rates of bond is significant. The presence of implicit guarantees will lower the issue rates.At last this paper gives some advices to solve the problems of China’s bond market. These include:strengthening the rating industry regulation, the introduction of junk bonds, the introduction of dual rating system.