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Credit Rating Agencies and Moral Hazard

Author

Listed:
  • Miloš Božović
  • Branko Urošević
  • Boško Živković

Abstract

The failure of credit rating agencies to properly assess risks of complex financial securities was instrumental in setting off the global financial crisis. This paper studies the incentives of companies and rating agencies and argues that the way the current rating market is organized may provide agencies with intrinsic disincentives to accurately report credit risk of securities they rate. Informational inefficiency is only enhanced when rating agencies function as an oligopoly or when they rate structured products. We discuss possible market and regulatory solutions to these problems. Key words: Credit rating agencies, Solicited and unsolicited ratings, Moral hazard.JEL: D43, G14, G15, G24.

Suggested Citation

  • Miloš Božović & Branko Urošević & Boško Živković, 2011. "Credit Rating Agencies and Moral Hazard," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 219-227.
    • Handle: RePEc:voj:journl:v:58:y:2011:i:2:p:219-227:id:150
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    More about this item

    Keywords

    Credit rating agencies; Solicited and unsolicited ratings; Moral hazard;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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