Emergence of Rating Agencies: Implications for Establishing a Regional Rating Agency in Asia
AbstractThe present analysis sheds light on the setting up a regional rating agency in Asia in the wake of recent financial crisis. We investigate the policy facing a financial regulator while evaluating whether or not to admit new entrant into the credit rating market. In an incomplete contracting framework, we show that an impartial financial regulatory body (represented by a benevolent supranational organization) can facilitate credit ratings of high quality by allowing for the entry of new rating agencies on a non-single basis than it does for a mere single entry. This finding is caused by increased competition among the rating agencies, which induces higher quality of rating services even should rating agencies still exert below their maximum level of efforts.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 241.
Length: 18 pages
Date of creation: 13 Aug 2010
Date of revision:
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credit rating agencies; moral hazard; incomplete contracting;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-IFN-2010-08-21 (International Finance)
- NEP-REG-2010-08-21 (Regulation)
- NEP-SEA-2010-08-21 (South East Asia)
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.:
- Antoine Faure-Grimaud & Eloïc Peyrache & Lucía Quesada, 2009.
"The ownership of ratings,"
RAND Journal of Economics,
RAND Corporation, vol. 40(2), pages 234-257.
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