The Credit Rating Market - Options for Appropriate Regulation

Arbeitspapier

The principal agent problem is one of the major issues of the credit rating agency market. Is it possible to solve the prevailing incentive problem of the market and contemporaneously satisfy the reputation demand of the investors? This paper presents an option for regulating the credit rating agency market more effectively. The market shall be coordinated through a central allocation office, which is acting as a mediator between both contractual parties. The paper develops a game theoretical approach that considers reputation as one of the most important aspects within the market. After analysing the status quo two policy options are discussed on a game theoretical basis. The main result is that the incorporation of a mediator, which awards the contracts based on a lottery drawing, would help to solve conflicts of interests. The incentive to inflate ratings decreases significantly. Moreover, rating shopping option becomes impossible. Two possible positive side effects for smaller CRAs and new incumbents are the increase of market share as well as reputation. Therefore, the market competition should be affected positively, too.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Papers on Global Financial Markets ; No. 39

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financial Institutions and Services: Government Policy and Regulation ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Asymmetric and Private Information; Mechanism Design
• Thema: credit rating agencies ; regulation ; reputation ; rating inflation ; rating shopping

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Freytag, Andreas ; Zenker, Martin
• Ereignis: Veröffentlichung
• (wer): Graduiertenkolleg 'Konstitutionelle Grundlagen globalisierter Finanzmärkte - Stabilität und Wandel'
• (wo): Jena und Halle (Saale)
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/94466
• URN: urn:nbn:de:gbv:27-20131126-103736-6
• Letzte Aktualisierung: 10.03.2025, 11:46 MEZ