Divergence in credit ratings

Matthew Rablen

Finance Research Letters, 2013, vol. 10, issue 1, 12-16

Abstract: During the recent credit crisis credit rating agencies (CRAs) became increasingly lax in their rating of structured products, yet increasingly stringent in their rating of corporate bonds. We examine a model in which a CRA operates in both the market for structured products and for corporate debt, and shares a common reputation across the two markets. We find that, as a CRA’s reputation becomes good enough, it can be optimal for it to inflate its ratings with probability one in the structured products market, but inflate its ratings with probability zero in the corporate bond market.

Keywords: Reputation; Spillovers; Divergence; Rating agencies (search for similar items in EconPapers)
JEL-codes: C73 D82 G24 L14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:1:p:12-16

DOI: 10.1016/j.frl.2012.11.001

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