Rating Agencies on the International Financial Market: an Approach in Terms of the Transaction Cost Economy

Monica Dudian
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Monica Dudian: Academy of Economic Studies Bucharest, România

Timisoara Journal of Economics, 2010, vol. 3, issue 3(11), 139-146

Abstract: Rating agencies, by the assigned risk grades, point out the quality of debtors and credit instruments in terms of the probability to cease payments and the recovery possibilities. The existence and development of rating agencies on the capital markets is generally explained by the capacity they have to facilitate transparency and efficiency of markets, by reducing the informational asymmetry between the issuers and investors. It is acknowledged by the professional literature that rating agencies diminish the problems of adverse selection and moral hazard. This paper is another theoretical manner of approach, trying to prove that one of the main explanations of the rating agencies existence is the fact that these organizations allow the economy of the transaction costs. The first part of the article briefly describes the concepts of transaction and transaction costs. Also, this part presents a synthetic image of the role of rating agencies on the capital market. The second part makes an analysis of the transaction with rating, as a contractual transaction and, at the same time, a producer of externalities. The paper explains why the transactions with rating can be considered hybrid mechanisms of governance generating externalities upon the exchanges on the financial markets, allowing the creation of new hybrid organizational structures on these markets. Moreover an attempt has been made to list the main categories of transaction costs saved due to the rating agencies requirements.

Keywords: rating; rating agencies; transaction costs; financial market (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Date: 2010
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