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Does Competition Affect Truth Telling? An Experiment with Rating Agencies

Jean Paul Rabanal () and Olga Rud ()

Review of Finance, 2018, vol. 22, issue 4, 1581-1604

Abstract: We use an experimental approach to study the effect of market structure on the incidence of misreporting by credit rating agencies. In the game, agencies receive a signal regarding the type of asset held by the seller and issue a report. The sellers then present the asset, with the report if one is solicited, to the buyer for purchase. We find that competition among rating agencies significantly reduces the likelihood of misreporting.

Keywords: Credit rating agencies; Conflicts of interest; Market structure; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D43 D82 G24 L15 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Does competition affect truth-telling? An experiment with rating agencies (2015) Downloads
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Handle: RePEc:oup:revfin:v:22:y:2018:i:4:p:1581-1604.