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

Marc Flandreau and Gabriel Geisler Mesevage
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Gabriel Geisler Mesevage: IHEID, The Graduate Institute of International and Development Studies, Geneva

No 11-2014, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: 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.

Keywords: Rating; Mercantile Agencies; Information; Credit Insurance; Comparative Economic History; Libel; Business Law (search for similar items in EconPapers)
JEL-codes: G2 K2 N2 P5 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-05-27
New Economics Papers: this item is included in nep-ban, nep-his, nep-ias and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp11-2014

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