Doctoral Dissertation Research: Statistical Rating Organizations and Institutional Isomorphism
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AWARD NUMBER
007004-002
FUND NUMBER
21296
STATUS
Closed
AWARD TYPE
3-Grant
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AWARD EXECUTION DATE
7/29/2014
BEGIN DATE
8/1/2014
END DATE
7/31/2015
AWARD AMOUNT
$5,569
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Sponsor Information
SPONSOR AWARD NUMBER
SPONSOR
SPONSOR TYPE
FUNCTION
Organized Research
PROGRAM NAME
Proposal Information
PROPOSAL NUMBER
14050417
PROPOSAL TYPE
New
ACTIVITY TYPE
Basic Research
PI Information
PI
Hanneman, Robert A
PI TITLE
Other
PI DEPTARTMENT
Sociology
PI COLLEGE/SCHOOL
Coll of Hum, Arts & Social Sci
CO PIs
Project Information
ABSTRACT
The proposed research examines the extent to which major corporate bond rating agencies, as gatekeepers to corporate investment capital, promote the adoption of normative practices to firms through the bond rating process. According to new-institutional theories, when facing uncertainty, institutional notions about best practices often guide organizational behavior rather than rational calculations based on economic efficiency. The high level of uncertainty present in the bond rating industry and the lack of accountability that comes from the few rating agencies creates an environment in which institutional notions about best practices potentially inform rating decisions.
The project focuses on quantitative analysis of firm ratings. I hypothesize that those firms engaging in normative behaviors (e.g. using popular forms of financial reporting, engaging in typical levels of product diversification, etc.) will be rewarded with higher credit ratings. I utilize regression modeling to predict firm credit rating as a function of engaging in normative behaviors. I further test whether or not engaging in the normative behaviors promoted by major bond rating agencies is in fact a good predictor of firm health or default. This research will make contributions to the existing organizational literature in sociology. By examining the extent to which bond rating agencies perpetuate institutionalized best practices, it tests theories of institutional isomorphism that claim industry norms often trump economically rational behavior in organizational fields. If theories of legitimacy can be used to explain some of the variance in credit ratings, we will gain a better understanding of how economic processes that appear irrational from a neoclassical economic perspective continue to exist. Also, through the content analysis of publicly available rating documents, this research directly observes a mechanism driving institutional isomorphism by analyzing the means through which rating agencies communicate appropriate behaviors to corporate bond issuers.
This research will contribute to broader society by examining the ways in which the existing bond rating sector, and by extension the entire securities rating sector, might be prone to systemic risk. This research examines an understudied group of powerful social actors who influence the resources of major global corporations. By illuminating details of the existing securities rating industry, this research will provide insight that will help to more broadly understand credit systems.(Abstract from NSF)
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