Do Credit Rating Agencies Inflate Their Ratings? A Review

Kee-Hong Bae () and Hamdi Driss ()
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Kee-Hong Bae: York University
Hamdi Driss: Saint Mary’s University

Journal of Financial Transformation, 2017, vol. 45, 90-100

Abstract: In this paper, we review the academic evidence on the roles and quality of credit ratings and structure our review around questions that are of interest to academics, professionals, and regulators alike. We review the evidence on how ratings affect market prices and corporate policies and discuss how incentive problems arising from the unique structure of the credit rating industry can adversely affect ratings quality. In particular, our discussion focuses on the issues of conflicts of interest, competition, and ratings shopping and their implications for ratings inflation. Our review identifies opportunities for future research on credit ratings.

Keywords: Credit rating agency; certification; conflicts of interest; competition; ratings shopping; ratings inflation (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1589

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