Arbeitspapier

Crises and rating agencies: On the effect of aggregate uncertainty on rating agencies' incentives to distort ratings

We analyze a rating agency's incentives to distort ratings in a model with a monopolistic profit maximizing rating agency, a continuum of heterogeneous firms, and a competitive market of risk-neutral investors. Firms sell bonds, the value of a firm's bond is known to the firm and observable by the agency, but not by buyers. Firms can choose to get a rating. The rating agency can reveal a signal of arbitrary precision about the quality of the bond. In contrast to the existing literature, we allow aggregate uncertainty. As in the existing literature, one rating class is optimal. However, the rating agency does not choose a socially optimal cutoff: the agency is more likely to be too lenient if the distribution of aggregate uncertainty has a lower mean, a higher variance, and is more left skewed. It is more likely to be too strict if the opposite holds.

Sprache
Englisch

Erschienen in
Series: SFB/TR 15 Discussion Paper ; No. 521

Klassifikation
Wirtschaft
Noncooperative Games
Market Structure, Pricing, and Design: Monopoly
Asymmetric and Private Information; Mechanism Design
Financial Institutions and Services: General
Thema
Rating Agencies
Certifi cation
Aggregate Uncertainty

Ereignis
Geistige Schöpfung
(wer)
Loerke, Petra
Niedermayer, Andreas
Ereignis
Veröffentlichung
(wer)
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
(wo)
München
(wann)
2015

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Loerke, Petra
  • Niedermayer, Andreas
  • Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)

Entstanden

  • 2015

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