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How Did Increased Competition Affect Credit Ratings? (Becker B., Milbourn T. T.)

Ratings

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.
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Libref/ Becker B., Milbourn T. T. (2010) "How Did Increased Competition Affect Credit Ratings?", Harvard Business School Finance Working Paper No. 09-051, pp. 1 - 49
© Программирование — Александр Красильников, 2008
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