Structured Debt Ratings: Evidence on Conflicts of Interest

Harald Hau and Matthias Efing

No 9465, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper tests for conflicts of interest in the rating process of European asset- and mortgage-backed securities based on a new aggregation method for a deal's different tranche ratings. Controlling for a large set of determinants of credit risk, we find that credit rating agencies provide better credit ratings for the structured products of those issuers that provide them with more overall bilateral rating business. This effect is particularly pronounced in the run-up to the subprime crisis and for structured products with the worst collateral. Rating favors to the largest clients generate economically significant competitive distortion, foster issuer concentration and contribute to the "too big to fail" status of large issuer banks.

Keywords: Credit ratings; Ratings inflation; Conflicts of interest; Structured debt (search for similar items in EconPapers)
JEL-codes: G01 G10 G24 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Structured debt ratings: Evidence on conflicts of interest (2015)
Working Paper: Structured Debt Ratings: Evidence on Conflicts of Interest (2013)
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