Towards a more objective credit rating

Mehmet Orhan and Ramazan Alpay
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Mehmet Orhan: Fatih Üniversitesi
Ramazan Alpay: Fatih Üniversitesi

Iktisat Isletme ve Finans, 2012, vol. 27, issue 317, 115-136

Abstract: This article reviews the functioning of prominent Credit Rating Agencies (CRAs) and suggests a better mechanism for rating. We start with the historical evolvement of the CRAs and the emergence of the three that are recognized first in the USA and then all round the world. The performance criteria they use to evaluate both securities and sovereigns are focused to have a better understanding of their failure especially at the global financial crisis. We review and discuss the main criticisms to the CRAs especially after the crises they have contributed to. Cases are addressed to underline the criticisms. We cite the suggestions to resolve the problem of credit rating. Finally, we propose our solution to the very important and critical task of credit rating and then brief how our solution fixes the existing problems.

Keywords: Credit rating agency; Reputational capital; S&P; Moody’s; Fitch rating; Global financial crisis. (search for similar items in EconPapers)
JEL-codes: E43 E44 G38 (search for similar items in EconPapers)
Date: 2012
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