 The Economics of Credit Rating AgenciesFrancesco Sangiorgi and Chester Spatt Foundations and Trends(R) in Finance, 2017, vol. 12, issue 1, 1-116 Abstract: We explore through both an economics and regulatory lens the frictions associated with credit rating agencies in the aftermath of the financial crisis. While ratings and other public signals are an efficient response to scale economies in information production, these also can discourage independent due diligence and be a source of systemic risk. Though Dodd-Frank pulls back on the regulatory use of ratings, it also promotes greater regulation of the rating agencies. We highlight the diverse underlying views towards these competing approaches to reducing systemic risk. Our monograph also discusses the subtle contrasts between credit rating agencies and other types of due diligence providers, such as auditors, analysts and proxy-voting advisors. We discuss the frictions associated with paying for information in the context of credit ratings; while the issuer-pay model has been identified as a major issue because of potential conflict of interests, we argue that it has several advantages over the investor-pay model in promoting market transparency. Keywords: Credit rating agencies; information production; information intermediation; conflict of interest; reputation; selection; competition; regulation; systemic risk (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:now:fntfin:0500000048 Access Statistics for this article More articles in Foundations and Trends(R) in Finance from now publishers |
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