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Do Credit Rating Agencies Inflate Their Ratings? A Review

Author

Listed:
  • Bae, Kee-Hong

    (York University)

  • Driss, Hamdi

    (Saint Mary’s University)

Abstract

In this paper, we review the academic evidence on the roles and quality of credit ratings and structure our review around questions that are of interest to academics, professionals, and regulators alike. We review the evidence on how ratings affect market prices and corporate policies and discuss how incentive problems arising from the unique structure of the credit rating industry can adversely affect ratings quality. In particular, our discussion focuses on the issues of conflicts of interest, competition, and ratings shopping and their implications for ratings inflation. Our review identifies opportunities for future research on credit ratings.

Suggested Citation

  • Bae, Kee-Hong & Driss, Hamdi, 2017. "Do Credit Rating Agencies Inflate Their Ratings? A Review," Journal of Financial Transformation, Capco Institute, vol. 45, pages 90-100.
    • Handle: RePEc:ris:jofitr:1589
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    Cited by:

    1. Zhang Chang & Xiaolu Hu & Zheyao Pan & Jing Shi, 2021. "Rating shopping: evidence from the Chinese corporate debt security market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2173-2200, April.

    More about this item

    Keywords

    Credit rating agency; certification; conflicts of interest; competition; ratings shopping; ratings inflation;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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