The Ownership of Ratings

Antoine Faure-Grimaud, Peyrache, Eloïc and Lucía Quesada

No 5432, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Standard & Poor's provides corporate governance ratings to firms who can, upon learning those, decide to reveal them or not to the market. This paper identifies the circumstances under which such a simple ownership contract over ratings can emerge as the optimal arrangement. Firms hiding their ratings can only be an equilibrium outcome if they are sufficiently uncertain of their quality at the time of hiring a certification intermediary and if the decision to get a rating is not observable. For some distribution functions of firms' qualities, a competitive market is a necessary condition for this result to obtain. Competition between rating intermediaries will unambiguously lead to less information being revealed in equilibrium.

Keywords: Certification; Corporate governance (search for similar items in EconPapers)
JEL-codes: D23 D82 G34 L15 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Related works:
Journal Article: The ownership of ratings (2009)
Working Paper: The Ownership of ratings (2009)
Working Paper: The ownership of ratings (2007)
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