IDEAS home Printed from https://ideas.repec.org/a/bla/ecnote/v44y2015i2p161-176.html
   My bibliography  Save this article

Why Credit Rating Agencies Exist

Author

Listed:
  • Robert J. Rhee

Abstract

type="main" xml:lang="en"> Although credit rating agencies exist and are important to the capital markets, there remains a question of why they should exist. Two standard theories are that rating agencies correct a problem of information asymmetry and that they de facto regulate investments. These theories do not fully answer the question. This paper suggests an alternative explanation. While rating agencies produce little new information, they sort information available in the credit market. This sorting function is needed due to the large volume of information in the credit market. Sorting facilitates better credit analysis and investment selection, but bond investors or a cooperative of them cannot easily replicate this function. Outside of their information intermediary and regulatory roles, rating agencies serve a useful market purpose even if credit ratings inherently provide little new information. This alternative explanation has policy implications for the regulation of the industry.

Suggested Citation

  • Robert J. Rhee, 2015. "Why Credit Rating Agencies Exist," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 44(2), pages 161-176, July.
    • Handle: RePEc:bla:ecnote:v:44:y:2015:i:2:p:161-176
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kamran Ahmed Siddiqui & Ishtiaq Ahmed Bajwa & Faisal Al-Hudithi & Tarig Eltayeb & Asma Khatoon & Suliman Bawardi, 2021. "Entrepreneurs' opinion towards credit rating in Saudi Arabia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 186-197, December.
    2. Anjali Karol, 2020. "A Decade After the Global Financial Crisis: Lessons and Policy for International Stability," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 416-423, April.
    3. Gaurav Dawar & Shivangi Bhatia & Jai Parkash Bindal, 2023. "Does Credit Rating Revisions Affect the Price of Common Stock: A Study of Indian Capital Market," Business Perspectives and Research, , vol. 11(2), pages 190-209, May.
    4. Rusike, Tatonga Gardner & Alagidede, Imhotep Paul, 2021. "The impact of sovereign credit ratings on Eurobond yields: Evidence from Africa," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Jamal A. Al‐Khasawneh & Paul Dion & Naceur Essaddam & Tashfeen Hussain, 2023. "Is the cost of equity a mere function of leverage? The case of bond IPOs," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 58-78, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecnote:v:44:y:2015:i:2:p:161-176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0391-5026 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.