How Did Increased Competition Affect Credit Ratings?
Publication Date
9-21-2008
Abstract
The credit rating industry has historically been dominated by just two agencies, Moody’s and S&P, leading to longstanding legislative and regulatory calls for increased competition. The material entry of a third rating agency (Fitch) to the competitive landscape offers a unique experiment to empirically examine how in fact increased competition affects the credit ratings market. Increased competition from Fitch coincides with lower quality ratings from the incumbents: rating levels went up, the correlation between ratings and market-implied yields fell, and the ability of ratings to predict default deteriorated. We offer several possible explanations for these findings that are linked to existing theories.
Document Type
Article
Keywords
Credit ratings, competition and reputation, information quality
Disciplines
Finance
DOI
10.2139/ssrn.1278150
Source
SMU Cox: Finance (Topic)
Language
English
