Credit Ratings and the Hold-Up Problem in the Loan Market.

This article examines whether credit ratings can mitigate the hold-up problem in the loan market, focusing on small, private, bank-dependent firms in France rated by the Banque de France. Exploiting a 2004 reform that refined the credit rating scale—creating rating "surprises" unrelated to changes in firm fundamentals—the study finds that firms receiving such surprises gain greater and cheaper bank credit, particularly from new and less informed lenders, while reducing reliance on incumbent lenders with informational monopolies. The rating surprise also increases the likelihood of firms establishing new banking relationships and leads to higher corporate investment and lower borrowing costs, without increasing credit risk. These findings suggest that unsolicited credit ratings by a third-party certifier can reduce information asymmetries and switching costs in banking relationships, thereby expanding credit access for small private firms.