Moral Hazard with Rating Agency: An Incentive Contracting Approach
AbstractCredit Rating agencies su?er from a possible moral hazard problem. This is caused due to the fact that the evaluation standards set by rating agencies are unobservable to outsiders. In this paper, we address the moral hazard problem with the rating agencies. We discuss the feasibility of possible incentive contracts that can ameliorate this problem. We ¡¥nd, that incentive payments to the rating agency based on expected returns on debt will eliminate the moral hazard problem.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 5 (2004)
Issue (Month): 2 (November)
Credit rating; Information production; Moral hazard;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G29 - Financial Economics - - Financial Institutions and Services - - - Other
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nayar, Nandkumar, 1993. "Asymmetric information, voluntary ratings and the Rating Agency of Malaysia," Pacific-Basin Finance Journal, Elsevier, vol. 1(4), pages 369-380, December.
- Anette Boom, . "A Monopolistic Credit Rating Agency," Papers 011, Departmental Working Papers.
- Forster, Josef, 2008. "The Optimal Regulation of Credit Rating Agencies," Discussion Papers in Economics 5169, University of Munich, Department of Economics.
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