Do Reputational Concerns Lead to Reliable Ratings?

Beatriz Mariano

FMG Discussion Papers from Financial Markets Group

Abstract: This paper examines to what extent reputational concerns give rating agencies incentives to reveal information. It demonstrates that, in a simple model in which a rating agency has public and private information about a project, it may ignore private information and even contradict public information in an attempt to minimize reputational costs. A monopolistic agency can act conservatively by issuing too many bad ratings when a project is expected to be good based on private and public information. In a competitive setting, an agency becomes bolder and can issue too many good ratings when a project is expected to be bad based on private and public information. The paper provides a reason for why competition in the ratings industry might lead to overly optimistic ratings even in the absence of conflicts of interest.

New Economics Papers: this item is included in nep-cta and nep-ppm
Date: 2008-06

Downloads: (external link)
http://fmg.lse.ac.uk/pdfs/dp613.pdf (application/pdf)
Financial Markets Group Working Papers are free to download for academics and students, and for our subscribers and sponsors. If you fall into one of these categories but have trouble downloading our papers, or if you do not fall into one of these categories but would like to pay for a copy, please contact us at fmg@lse.ac.uk

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fmg:fmgdps:dp613

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Series data maintained by The FMG Administration ().