Credit rating and competition

Nelson Camanho*, Pragyan Deb, Zijun Liu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


We analyze the effect of competition between credit rating agencies (RA) which trade-off reputation (future income) and rating inflation (current income). We find that relative to monopoly, RA are more likely to inflate ratings under duopoly. Moreover, competition reduces welfare (the net income of the projects that are rated good) if the new entrant has low reputation and increases it if the new entrant has high reputation. Therefore, our results suggest that lowering barriers to entry (thus, allowing low-reputation credit RA to enter the market) might increase the level of rating inflation and reduce welfare.

Original languageEnglish
Pages (from-to)2873-2897
Number of pages25
JournalInternational Journal of Finance and Economics
Issue number3
Publication statusPublished - Jul 2022
Externally publishedYes


  • Competition
  • Financial regulation
  • Rating agencies
  • Reputation


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