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A Monopolistic Credit Rating Agency

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  • Anette Boom

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Abstract

The paper analyses the demand for credit rating services of a continuum of firms. The firms differ in the probability of their investment's success which is private information. They can use the service of a monopolistic rating agency that sends an imperfect signal of their success probability to the capital market. The demand for rating services turns out to be not always monotonous in its price. If a rating agency exists, only rated firms obtain a credit. There can be oversupply or undersupply of rating services from a social planner's point of view.

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Bibliographic Info

Paper provided by Departmental Working Papers in its series Papers with number 011.

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Handle: RePEc:bef:lsbest:011

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  1. Milde, Hellmuth & Riley, John G, 1988. "Signaling in Credit Markets," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 101-29, February.
  2. Millon, Marcia H & Thakor, Anjan V, 1985. " Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies," Journal of Finance, American Finance Association, vol. 40(5), pages 1403-22, December.
  3. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  4. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  5. Ramakrishnan, Ram T S & Thakor, Anjan V, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 415-32, July.
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Cited by:
  1. Kirstein, Roland, 2002. "The new Basle Accord, internal ratings, and the incentives of banks," International Review of Law and Economics, Elsevier, vol. 21(4), pages 393-412, May.
  2. Bappaditya Mukhopadhyay, 2006. "Existence of Unsolicited Ratings," Asia-Pacific Financial Markets, Springer, vol. 13(3), pages 207-233, September.
  3. Forster, Josef, 2008. "The Optimal Regulation of Credit Rating Agencies," Discussion Papers in Economics 5169, University of Munich, Department of Economics.
  4. Yiquan Gu, 2008. "Imperfect Certification," Ruhr Economic Papers 0078, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Bappaditya Mukhopadhyay, 2004. "Moral Hazard with Rating Agency: An Incentive Contracting Approach," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 313-333, November.

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