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Towards a more objective credit rating

Author

Listed:
  • Mehmet ORHAN

    (Fatih Üniversitesi)

  • Ramazan ALPAY

    (Fatih Üniversitesi)

Abstract

This article reviews the functioning of prominent Credit Rating Agencies (CRAs) and suggests a better mechanism for rating. We start with the historical evolvement of the CRAs and the emergence of the three that are recognized first in the USA and then all round the world. The performance criteria they use to evaluate both securities and sovereigns are focused to have a better understanding of their failure especially at the global financial crisis. We review and discuss the main criticisms to the CRAs especially after the crises they have contributed to. Cases are addressed to underline the criticisms. We cite the suggestions to resolve the problem of credit rating. Finally, we propose our solution to the very important and critical task of credit rating and then brief how our solution fixes the existing problems.

Suggested Citation

  • Mehmet ORHAN & Ramazan ALPAY, 2012. "Towards a more objective credit rating," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 27(317), pages 115-136.
  • Handle: RePEc:iif:iifjrn:v:27:y:2012:i:317:p:115-136
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    More about this item

    Keywords

    Credit rating agency; Reputational capital; S&P; Moody’s; Fitch rating; Global financial crisis.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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