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The Ownership of Ratings


  • Faure-Grimaud, Antoine
  • Peyrache, Eloïc
  • Quesada, Lucía


Standard & Poor's provides corporate governance ratings to firms who can, upon learning those, decide to reveal them or not to the market. This paper identifies the circumstances under which such a simple ownership contract over ratings can emerge as the optimal arrangement. Firms hiding their ratings can only be an equilibrium outcome if they are sufficiently uncertain of their quality at the time of hiring a certification intermediary and if the decision to get a rating is not observable. For some distribution functions of firms' qualities, a competitive market is a necessary condition for this result to obtain. Competition between rating intermediaries will unambiguously lead to less information being revealed in equilibrium.

Suggested Citation

  • Faure-Grimaud, Antoine & Peyrache, Eloïc & Quesada, Lucía, 2005. "The Ownership of Ratings," CEPR Discussion Papers 5432, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5432

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    References listed on IDEAS

    1. Masahiro Okuno-Fujiwara & Andrew Postlewaite & Kotaro Suzumura, 1990. "Strategic Information Revelation," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 25-47.
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    5. Joseph Farrell, 1985. "Voluntary Disclosure: Robustness of the Unraveling Result, and Comments on Its Importance," Working papers 374, Massachusetts Institute of Technology (MIT), Department of Economics.
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    7. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    8. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 107-156.
    9. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
    10. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
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    13. Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring.
    14. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
    15. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
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    More about this item


    certification; corporate governance;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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