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The Credibility of Credit Ratings

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  • Emilia Klepczarek

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Abstract

Credit rating agencies (CRAs) are found to strongly influence the market participants’ decisions. Therefore it is essential to make their assessments credible and accurate. The financial crisis proved that this condition was not met relating to the US financial market. The paper focuses on the case of Lehman Brothers Holding which may be treated as a kind of ‘natural experiment’ – the collapse of this bank is an absolute evidence of its poor condition. Thus, verifying the credibility of ratings requires only reviewing the rating agencies’ assessments in the prebankruptcy period. The author finds that, firstly, the grades didn’t reflect the bad situation sufficiently and secondly, the CRAs responded with a great delay to the detoriating market circumstances.

Suggested Citation

  • Emilia Klepczarek, 2015. "The Credibility of Credit Ratings," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 7(3), pages 33-38, September.
  • Handle: RePEc:khe:journl:v:7:y:2015:i:3:p:33-38
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    References listed on IDEAS

    as
    1. Nicholas Economides, 2008. "Competition Policy Issues in the Consumer Payments Industry," Working Papers 08-39, NET Institute, revised Oct 2008.
    2. Skreta, Vasiliki & Veldkamp, Laura, 2009. "Ratings shopping and asset complexity: A theory of ratings inflation," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 678-695, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Credit ratings; Accuracy; Lehman Brothers; Risk assessment; Financial crisis; Corporate governance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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