publication . Preprint . Article . 2010

Credit Rating and Competition

Nelson Camanho; Pragyan Deb; Zijun Liu;
Open Access
  • Published: 01 Apr 2010
Abstract
In principle, credit rating agencies are supposed to be impartial observers that bridge the gap between private information of issuers and the information available to the wider pool of investors. However, since the 1970s, rating agencies have relied on an issuer-pay model, creating a conflict of interest the largest source of income for the rating agencies are the fees paid by the issuers the rating agencies are supposed to impartially rate. In this paper, we explore the trade-off between reputation and fees and find that relative to monopoly, rating agencies are more prone to inflate ratings under competition, resulting in lower expected welfare. Our results s...
Subjects
free text keywords: Conflict of interest, Reputation, media_common.quotation_subject, media_common, Bond credit rating, Business, Finance, business.industry, Credit reference, Monopoly, Credit enhancement, Financial regulation, Credit rating
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publication . Preprint . Article . 2010

Credit Rating and Competition

Nelson Camanho; Pragyan Deb; Zijun Liu;