Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?

Mathis, Jérôme; McAndrews, James; Rochet, Jean‐Charles

doi:10.1016/j.jmoneco.2009.04.004

Cited by 479 publications

(250 citation statements)

References 17 publications

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“…Of course, the regulator will have to set the rating fee at the right level, so as to ensure the viability of CRAs but avoid leaving them with excessive rents. A variant of this approach is the "platform pays" model proposed by Mathis et al (2009): when an issuer wants to apply for a credit rating by a CRA, it is required to contact a platform (an exchange, a clearing house or a central depository), which would charge a fee to the issuer and choose a CRA to get the rating done. The platform's interposition would thus prevent direct contracting between issuers and CRAs, and its concern to retain trading activity by investors would presumably induce it to select the most reliable CRA.…”

Section: Preferred Policymentioning

confidence: 99%

Credit Ratings Failures and Policy Options

Pagano

Volpin

2012

Economic Policy 62

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This paper examines the role of credit rating agencies in the subprime crisis that triggered the 2007-08 financial turmoil. The focus of the paper is on two aspects of ratings that contributed to the boom and bust of the market for asset-backed securities: rating inflation and coarse information disclosure. The paper discusses how regulation can be designed to mitigate these problems in the future. The suggestion is that regulators should require rating agencies to be paid by investors rather than by issuers (or at least constrain the way they are paid by issuers) and force greater disclosure of information about the underlying pool of securities.JEL Classification: D82, G18, G21.

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Section: Preferred Policymentioning

confidence: 99%

Credit Ratings Failures and Policy Options

Pagano

Volpin

2012

Economic Policy 62

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“…Notice first that if assumption 3 was not verified, the certifier's profit would be monotonic in its reputation. Hence the analysis of reputational incentives would be essentially identical to previous contributions on this topic (e.g., Benabou andLaroque, 1992 or Mathis, McAndrews, andRochet, 2009). Since the market for certification is essentially twosided, the analysis of reputation-building when reputational incentives are ambiguous is warranted.…”

Section: The Costs and Benefits Of Reputationmentioning

confidence: 76%

“…After Sobel (1985), Benabou and Laroque (1992) and Mathis, McAndrews, and Rochet (2009) have shown that reputation has a disciplining effect but is not sufficient to ensure truthful information transmission. As most papers on reputation in the literature, these papers are based on a trade-off between short-term incentives to manipulate information in order to inflate short-term profits and long-term incentives to build up a reputation.…”

Section: Introductionmentioning

confidence: 99%

Two-Sided Reputation in Certification Markets

Bouvard

Levy

2018

Management Science

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We consider a market where privately informed sellers resort to certification to overcome adverse selection. There is uncertainty about the certifier's ability to generate accurate information. The profit of a monopolistic certifier is an inverted U-shaped function of his reputation for accuracy: being perceived as more precise allows to attract more good sellers but a high expected precision also deters bad sellers. Since the certifier tries to reach a balanced reputation to attract both types, reputation has a disciplining effect when the certifier is perceived as insufficiently accurate, but gives incentives to decrease precision when he is perceived as "too" accurate. The impact of competition depends on whether sellers "multihome" or "singlehome". Under singlehoming, certifiers compete to attract good sellers, which makes higher reputation more valuable. Multihoming makes higher reputations less desirable because the competitor exerts a negative externality by providing extra information. Therefore, singlehoming attenuates bad reputation effects, while multihoming exacerbates inefficiencies.

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“…The rating agencies and their impact on the economies of countries and companies have been the subjects of many studies and publications. Particular attention was given thereto after 2008, when their reliability was examined (Mathis et al, 2009). One of the bases of such activities were doubts and objections regarding the very procedure of giving rating scores where the costs are covered by the issuer and not the investor interested in valuation.…”

Section: Rating Agenciesmentioning

confidence: 99%

Determinants of Interest Rates on Corporate Bonds of Mining Enterprises

Ranosz

2017

Archives of Mining Sciences

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This article is devoted to the determinants of interest rates on corporate bonds of mining enterprises. The study includes a comparison between the cost of foreign capital as resulting from the issue of debt instruments in different sectors of the economy in relation to the mining industry. The article also depicts the correlation between the rating scores published by the three largest rating agencies: S&P, Moody`s, and Fitch. The test was based on simple statistical methods. The analysis performed indicated that there is a dependency between the factors listed and the amount of interest rates on corporate bonds of global mining enterprises. Most significant factors include the rating level and the period for which the given series of bonds was issued. Additionally, it is not without significance whether the given bond has additional options. Pursuant to the obtained results, is should be recognized that in order to reduce the interest rate on bonds, mining enterprises should pay particular attention to the rating and attempt to include additional options in issued bonds. Such additional options may comprise, for example, an ability to exchange bonds to shares or raw materials.Keywords: mining corporate bonds, convertible bonds, callable and puttable bonds, bond's coupon Niniejszy artykuł został poświęcony determinantom oprocentowania obligacji korporacyjnych spółek górniczych. Do głównych czynników mających znaczący wpływ na wartość kuponu obligacji zaliczono: okres do wykupu obligacji, poziom ratingu oraz rodzaj obligacji. Każda z wymienionych zmiennych może wpływać na obniżenie oraz na podwyższenie wartości kuponu (oprocentowania) obligacji. Celem niniejszego opracowania jest zbadanie zależności pomiędzy kuponem a wymienionymi determinantami. Opracowanie zawiera również porównanie kosztu kapitału obcego wynikającego z emisji instrumentów dłużnych różnych sektorów gospodarki w stosunku do sektora górniczego. W artykule zbadano również korelację pomiędzy udzielanymi ratingami publikowanymi przez trzy największe agencje ratingowe, do których zaliczono: S&P, Moody`s oraz Fitch. Do przeprowadzenia badania wykorzystano proste metody statystyczne. Przeprowadzona analiza wykazała, iż istnieje zależność pomiędzy wymienionymi czynnikami a wartością oprocentowania obligacji emitowanych przez przedsiębiorstwa górnicze na świecie. 622Należy również stwierdzić, iż do najważniejszych należy zaliczyć poziom ratingu oraz okres na jaki została wyemitowana dana seria obligacji. Nie bez znaczenia jest również to czy dana obligacja posiada opcje dodatkowe. Na podstawie otrzymanych wyników należy stwierdzić, iż przedsiębiorstwa górnicze w celu obniżenia oprocentowania obligacji powinny zwracać szczególną uwagę na rating oraz starać się zwierać opcje dodatkowe w emitowanych przez siebie obligacjach. Taką opcją dodatkową może być na przykład możliwości zamiany obligacji na akcje czy też surowiec.Słowa kluczowe: górnicze obligacje korporacyjne, obligacje zamienne, obligacje callable i puttable, kupon obligacji

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Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?

Cited by 479 publications

References 17 publications

Credit Ratings Failures and Policy Options

Credit Ratings Failures and Policy Options

Two-Sided Reputation in Certification Markets

Determinants of Interest Rates on Corporate Bonds of Mining Enterprises

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