Credit rating and competition

Nelson Camanho*, Pragyan Deb, Zijun Liu

*Autor correspondente para este trabalho

Resultado de pesquisarevisão de pares

4 Citações (Scopus)

Resumo

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.

Idioma originalEnglish
RevistaInternational Journal of Finance and Economics
DOIs
Estado da publicaçãoAccepted/In press - 2020
Publicado externamenteSim

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