We examine how increased competition among third-party certifiers influences the bias in their reported information. Specifically, we analyze the entry of a fourth bond pricing agency (BPA) into the Korean market as a shock to market competition among BPAs that provide fair value estimates for OTC-traded products to financial institutions. Using a difference-in-differences approach, we find that BPAs respond more strongly to the window-dressing of financial institutions and bias prices upwards. The effect is more pronounced for less liquid and higher-rated bonds. Moreover, our results provide new insights on the real effects of bias in fair value estimates decreases liquidity in the corporate bond market.
| Speaker: | Dr Doyeon Kim Assistant Professor of Accounting, University of Hong Kong |
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