 Market power and reputational concerns in the ratings industryJournal of Banking & Finance, 2012, vol. 36, issue 6, 1616-1626 Abstract: This paper studies the incentives of rating agencies to reveal the information that they obtain about their client firms. In the model, rating agencies seek to maximize their reputation and protect their market power. They observe public information and obtain either precise or noisy private information about a firm. Reputational concerns dictate that a rating reflects private information when it is precise. However, when private information is noisy, two situations arise. In a monopoly, the rating agency may ignore private information and issue a rating that conforms to public information. Under some conditions, it may even become cautious and issue bad ratings ignoring both types of information. With competition, however, it has incentives to contradict public information as a way to pretend that it holds precise private information. Moreover, it may become more likely to issue good ratings in an attempt to protect market power. Keywords: Reputation; Rating agencies; Market power; Conformism; Private information; Public information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:6:p:1616-1626 DOI: 10.1016/j.jbankfin.2012.01.012 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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