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The Ownership of ratings

Author

Listed:
  • Eloïc-Anil Peyrache

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Antoine Faure-Grimaud

    (LSE - London School of Economics and Political Science)

  • Lucia Quesada

    (Universidad Torcuato Di Tella - Universidad Torcuato di Tella)

Abstract

We identify the optimal contract between a rating agency and a firm and the circumstances under which simple ownership contracts implement this optimal solution. We assume that the decision to obtain a rating is endogenous and the price of a rating is a strategic variable. Clients hiding their ratings can be an equilibrium only if they are ex ante uncertain of their quality and if the hiring decision is not observable. For some distribution functions, a competitive rating market is necessary for this result to obtain. In this context, competition between rating intermediaries will lead to less information in equilibrium.

Suggested Citation

  • Eloïc-Anil Peyrache & Antoine Faure-Grimaud & Lucia Quesada, 2009. "The Ownership of ratings," Post-Print hal-00491667, HAL.
  • Handle: RePEc:hal:journl:hal-00491667
    DOI: 10.1111/j.1756-2171.2009.00063.x
    Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00491667
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    Citations

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    Cited by:

    1. Fabrizio Adriani & Luca G. Deidda & Silvia Sonderegger, 2014. "How do Financial Intermediaries Create Value in Security Issues?," Review of Finance, European Finance Association, vol. 18(5), pages 1915-1951.
    2. Dahm, Matthias & González, Paula & Porteiro, Nicolás, 2018. "The enforcement of mandatory disclosure rules," Journal of Public Economics, Elsevier, vol. 167(C), pages 21-32.
    3. Emmanuel Farhi & Josh Lerner & Jean Tirole, 2013. "Fear of rejection? Tiered certification and transparency," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 610-631, December.
    4. Michael R King & Steven Ongena & Nikola Tarashev, 2016. "Bank standalone credit ratings," BIS Working Papers 542, Bank for International Settlements.
    5. Fischer, Thomas, 2015. "Market structure and rating strategies in credit rating markets – A dynamic model with matching of heterogeneous bond issuers and rating agencies," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 39-56.
    6. Efing, Matthias & Hau, Harald, 2015. "Structured debt ratings: Evidence on conflicts of interest," Journal of Financial Economics, Elsevier, vol. 116(1), pages 46-60.
    7. Pollrich, Martin & Wagner, Lilo, 2016. "Imprecise information disclosure and truthful certification," European Economic Review, Elsevier, vol. 89(C), pages 345-360.
    8. repec:bla:jindec:v:65:y:2017:i:2:p:309-335 is not listed on IDEAS
    9. repec:sgm:resrep:v:2:i:22:y:2016:p:48-59 is not listed on IDEAS
    10. repec:eee:finana:v:62:y:2019:i:c:p:91-103 is not listed on IDEAS
    11. Matthias Efing, 2012. "Bank Capital Regulation with an Opportunistic Rating Agency," Swiss Finance Institute Research Paper Series 12-19, Swiss Finance Institute.
    12. Sivan Frenkel, 2015. "Repeated Interaction and Rating Inflation: A Model of Double Reputation," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 250-280, February.
    13. repec:kap:jrefec:v:55:y:2017:i:2:d:10.1007_s11146-016-9563-2 is not listed on IDEAS

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    Keywords

    Ownership; ratings;

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