Non-rating revenue and conflicts of interest

Ramin P. Baghai and Bo Becker

Journal of Financial Economics, 2018, vol. 127, issue 1, 94-112

Abstract: Rating agencies produce ratings used by investors, but obtain most of their revenue from issuers, leading to a conflict of interest. We employ a unique data set on the use of non-rating services, and the associated payments, in India, to test if this conflict affects ratings quality. Agencies rate issuers that pay them for non-rating services higher (than agencies not hired for such services). Such issuers also have higher default rates. Both effects are increasing in the amount paid. These results suggest that issuers which hire agencies for non-rating services receive higher ratings despite having higher default risk.Keywords: Credit ratings; Agency problems; Issuer-pays;

JEL-codes: G20 G24 G28 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (22)

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Working Paper: Non-rating revenue and conflicts of interest (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:127:y:2018:i:1:p:94-112

DOI: 10.1016/j.jfineco.2017.10.004

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