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Disclosure in Markets for Ratings

Author

Listed:
  • Ran Weksler
  • Boaz Zik

Abstract

We study the implications of the disclosure regime of ratings on the level of information released to the public. Specifically, we compare mandatory and voluntary disclosure. We analyze a model where the potential issuers are initially endowed with homogeneous soft information about their values before paying to acquire ratings. We find that for every accuracy level of the issuers' initial information, voluntary disclosure results in a more informative equilibrium than mandatory disclosure. This finding identifies a dimension in which the existing European Union regulations that impose the mandatory disclosure of ratings may lead to a loss of information to the public.

Suggested Citation

  • Ran Weksler & Boaz Zik, 2023. "Disclosure in Markets for Ratings," American Economic Journal: Microeconomics, American Economic Association, vol. 15(3), pages 501-526, August.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:3:p:501-26
    DOI: 10.1257/mic.20210214
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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