Choi, Sunhwa (2011) The valuation of foreign and domestic income by credit rating agencies. Working Paper. Lancaster University, Lancaster.
I investigate whether credit rating agencies distinguish between foreign and domestic income in their rating decisions. I further examine whether credit rating agencies fully incorporate the information in foreign and domestic income about future performance into their ratings. I find that rating agencies do not distinguish between foreign and domestic income, despite the higher persistence of foreign income in predicting future earnings. As a result, rating agencies underestimate the persistence of foreign income; however, this underestimation of foreign income is significantly reduced after SFAS 131.
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