IDEAS home Printed from https://ideas.repec.org/a/vra/journl/v9y2020i2p13-22.html
   My bibliography  Save this article

Regulation of Credit Rating Agencies - Different Views and Solutions

Author

Listed:
  • Dimitar Rafailov

    (University of Economics - Varna, Varna, Bulgaria)

Abstract

Credit rating agencies are an important element of the informational financial infrastructure, which is essential for the stability of the financial system. In the absence of conflicts of interest and the importance of the established reputation for the rating agencies, self-regulation is sufficient to guarantee high-accuracy ratings. The payment for ratings by issuers and their use in financial regulations create distorted incentives to pursue higher profits at the expense of the quality of ratings. The demonstrated failures of the rating agencies confirm the need for strict regulations to restore investor confidence in the ratings.

Suggested Citation

  • Dimitar Rafailov, 2020. "Regulation of Credit Rating Agencies - Different Views and Solutions," Izvestia Journal of the Union of Scientists - Varna. Economic Sciences Series, Union of Scientists - Varna, Economic Sciences Section, vol. 9(2), pages 13-22, August.
  • Handle: RePEc:vra:journl:v:9:y:2020:i:2:p:13-22
    DOI: 10.36997/IJUSV-ESS/2020.9.2.13
    as

    Download full text from publisher

    File URL: http://su-varna.org/journal/IJUSV-ESS/2020.9.2/13-22.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.36997/IJUSV-ESS/2020.9.2.13?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jeon, Doh-Shin & Lovo, Stefano, 2013. "Credit rating industry: A helicopter tour of stylized facts and recent theories," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 643-651.
    2. Lawrence J. White, 2016. "The Credit Rating Agencies: An Analysis through the Lenses of Industrial Organization, Finance, and Regulation," Working Papers 16-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Imad A Moosa, 2017. "The regulation of credit rating agencies: A realistic view," Journal of Banking Regulation, Palgrave Macmillan, vol. 18(2), pages 180-200, April.
    4. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    5. Lawrence J. White, 2016. "Credit Rating Agencies: An Analysis Through the Lenses of Industrial Organization, Finance and Regulation," Pacific Economic Review, Wiley Blackwell, vol. 21(2), pages 202-226, May.
    6. Jiang, John (Xuefeng) & Harris Stanford, Mary & Xie, Yuan, 2012. "Does it matter who pays for bond ratings? Historical evidence," Journal of Financial Economics, Elsevier, vol. 105(3), pages 607-621.
    7. repec:reg:rpubli:345 is not listed on IDEAS
    8. Lawrence J. White, 2013. "Credit Rating Agencies: An Overview," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 93-122, November.
    9. David Brookfield & Phillip Ormrod, 2000. "Credit agency regulation and the impact of credit ratings in the international bond market," The European Journal of Finance, Taylor & Francis Journals, vol. 6(4), pages 311-331.
    10. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    11. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 659-679.
    12. Coffee, John C., 2004. "Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reforms," Berkeley Olin Program in Law & Economics, Working Paper Series qt13d8s2qs, Berkeley Olin Program in Law & Economics.
    13. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    14. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 79-101, June.
    2. Anna Bayona & Oana Peia & Razvan Vlahu, 2023. "Credit Ratings and Investments," Working Papers 776, DNB.
    3. Dan Amiram & Zahn Bozanic & James D. Cox & Quentin Dupont & Jonathan M. Karpoff & Richard Sloan, 2018. "Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature," Review of Accounting Studies, Springer, vol. 23(2), pages 732-783, June.
    4. Strausz, Roland, 2005. "Honest certification and the threat of capture," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 45-62, February.
    5. Kirsten Burkhardt, 2011. "Le rôle des sociétés de capital-risque dans la formation d’alliances stratégiques:Une synthèse de littérature - The Role of Venture Capitalists in the Formation of Strategic Alliances:An academic lite," Working Papers CREGO 1111102, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    6. Jang, Inkee & Kang, Kee-Youn, 2021. "Adverse selection and costly information acquisition in asset markets," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    7. Dinopoulos, Elias & Livanis, Grigorios & West, Carol, 2010. "Country of Origin Labeling (C.O.O.L.): How cool is it?," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 575-589, October.
    8. Arnab Bhattacharya & Binay Bhushan Chakrabarti & Chinmoy Ghosh & Milena Petrova, 2020. "Innovations in financing: The impact of anchor investors in Indian IPOs," European Financial Management, European Financial Management Association, vol. 26(4), pages 1059-1106, September.
    9. Annika Veh & Markus Göbel & Rick Vogel, 2019. "Corporate reputation in management research: a review of the literature and assessment of the concept," Business Research, Springer;German Academic Association for Business Research, vol. 12(2), pages 315-353, December.
    10. Simon Kleinert & Christine Volkmann & Marc Grünhagen, 2020. "Third-party signals in equity crowdfunding: the role of prior financing," Small Business Economics, Springer, vol. 54(1), pages 341-365, January.
    11. Lingfang (Ivy) Li, 2010. "Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 303-331, June.
    12. Amanpreet Kaur & Balwinder Singh, 2018. "Corporate Reputation: Do Board Characteristics Matter? Indian Evidence," Indian Journal of Corporate Governance, , vol. 11(2), pages 122-134, December.
    13. Klein, Peter G. & Wuebker, Robert & Zoeller, Kathrin, 2016. "Relationship banking and conflicts of interest: Evidence from German initial public offerings," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 210-221.
    14. Schaetzle, Dominik, 2011. "Ökonomische Funktionen von Ratingagenturen: Ratingagenturen in der neoinstitutionalistischen Finanzierungstheorie," Arbeitspapiere 113, University of Münster, Institute for Cooperatives.
    15. Quentin Dupont & Jonathan M. Karpoff, 2020. "The Trust Triangle: Laws, Reputation, and Culture in Empirical Finance Research," Journal of Business Ethics, Springer, vol. 163(2), pages 217-238, May.
    16. Trauten, Andreas, 2004. "Zur Effizienz von Wertpapieremissionen über Internetplattformen," Working Papers 8, University of Münster, Competence Center Internet Economy and Hybrid Systems, European Research Center for Information Systems (ERCIS).
    17. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    18. Christian Hackober & Carolin Bock, 2021. "Which investors’ characteristics are beneficial for initial coin offerings? Evidence from blockchain technology-based firms," Journal of Business Economics, Springer, vol. 91(8), pages 1085-1124, October.
    19. Gergaud, Olivier & Livat, Florine, 2007. "How do consumers use signals to assess quality?," Working Papers 37296, American Association of Wine Economists.
    20. Bandyopadhyay, Arindam & Das, Sandwip Kumar, 2005. "The linkage between the firm's financing decisions and real market performance: A panel study of Indian corporate sector," Journal of Economics and Business, Elsevier, vol. 57(4), pages 288-316.

    More about this item

    Keywords

    rating agencies; credit ratings; regulation;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vra:journl:v:9:y:2020:i:2:p:13-22. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Pavel Petrov (email available below). General contact details of provider: https://edirc.repec.org/data/uevecea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.