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The Separation of Information and Lending and the Rise of Rating Agencies in the United States

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This paper provides a new interpretation of the early rise of rating agencies in the United States (initially known as ‘Mercantile Agencies’). We explain this American exceptionality through an inductive approach that revisits the conventional parallel with the UK. In contrast with earlier narratives that have emphasized the role of Common Law and the greater understanding of American judges that would have supported the rise of an ethos of ‘transparency’, we argue that Mercantile Agencies prospered as a remedy to deficient bankruptcy law and weak protection of creditor rights in the US. The result was to raise the value of the nation-wide registry of defaulters which the Mercantile Agencies managed. This ensured the Agencies’ profitability and endowed them with resources to buy their survival in a legal environment that remained stubbornly hostile.

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  • Marc Flandreau & Gabriel Geisler Mesevage, 2014. "The Separation of Information and Lending and the Rise of Rating Agencies in the United States," IHEID Working Papers 11-2014, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp11-2014
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP11-2014.pdf
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    Cited by:

    1. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.
    2. Accominotti, Olivier & Lucena, Delio & Ugolini, Stefano, 2019. "The Origination and Distribution of Money Market Instruments: Sterling Bills of Exchange during the First Globalisation," CEPR Discussion Papers 14058, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Rating; Mercantile Agencies; Information; Credit Insurance; Comparative Economic History; Libel; Business Law;
    All these keywords.

    JEL classification:

    • P5 - Economic Systems - - Comparative Economic Systems
    • G2 - Financial Economics - - Financial Institutions and Services
    • N2 - Economic History - - Financial Markets and Institutions
    • K2 - Law and Economics - - Regulation and Business Law

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