Are Competitive Rating Agencies Efficient?

Bappaditya Mukhopadhyay
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Bappaditya Mukhopadhyay: Bappaditya Mukhopadhyay, India Development Foundation, 316, Qutab Plaza, DLF Phase-I, Gurgaon 122 002, India.
Authors registered in the RePEc Author Service: Bappaditya Mukhopadhyay () and Bappaditya Mukhopadhyay

Journal of Emerging Market Finance, 2009, vol. 8, issue 1, 67-85

Abstract: Two very large companies, Moody's and Standard & Poor's, dominate the credit-rating industry. These two companies own around 80 per cent of the market. No other significant major competitors exist, though there are companies that rate local securities in places like China and India. In India, bulk of the ratings done by the two leading rating agencies—CRISIL (S&P majority stakeholder) and ICRA (Moody as the major stakeholder) have more than 80 per cent market share. Is this industry efficient? In this article, we present a simple theoretical model of competitive rating agencies. We establish that competition among rating agencies need not be efficient. We also show that despite price war, a more efficient rating agency will not necessarily drive out the inefficient one.

Keywords: Credit Rating; Asymmetric Information; JEL Classification: G140; JEL Classification: G200; JEL Classification: G290 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:8:y:2009:i:1:p:67-85

DOI: 10.1177/097265270900800104

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