Reputation and competition: evidence from the credit rating industry
AbstractThe credit rating industry has historically been dominated by just two agencies, Moody’s and S&P, leading to longstanding legislative and regulatory calls for increased competition. The material entry of a third rating agency (Fitch) to the competitive landscape offers a unique experiment to empirically examine how in fact increased competition affects the credit ratings market. Increased competition from Fitch coincides with lower quality ratings from the incumbents: rating levels went up, the correlation between ratings and market-implied yields fell, and the ability of ratings to predict default deteriorated. We offer several possible explanations for these findings that are linked to existing theories.
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Bibliographic InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-051.
Length: 49 pages
Date of creation: Oct 2008
Date of revision: Sep 2010
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-COM-2008-10-07 (Industrial Competition)
- NEP-MIC-2008-10-07 (Microeconomics)
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