How Consistent are Credit Ratings? A Geographic and Sectoral Analysis of Default Risk

Abstract

The authors examine differences in default rates by sector and obligor domicile. They find evidence that credit ratings have been imperfectly calibrated across issuer sectors in the past. Controlling for year of issue and rating, default rates appear to be higher for U.S. financial firms than U.S. industrial firms. Sectoral differences in recovery rates do not offset the higher default rates. By contrast, the authors do not find significant differences in default rates between U.S. and foreign firms.