Firms strategically obtain multiple ratings to protect against financial downgrades.
Firms get multiple bond ratings to protect themselves from being downgraded. A study looked at how firms near a downgrade or upgrade decision used this strategy. They found that firms near a downgrade were more likely to get a third rating, which helped prevent many of them from being downgraded. Investors also preferred bonds with multiple ratings near a downgrade. This shows that firms use multiple ratings to lower the risk of being downgraded.