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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26532

Title: Rating Agencies: Is There an Agency Issue? Roy C. Smith and Ingo Walter
Authors: Smith, Roy C.
Walter, Ingo
Issue Date: Oct-2001
Series/Report no.: FIN-01-003
Abstract: This paper examines the potential for conflicts of interest in the debt ratings business. Inherent in the current business model is the fact that firms whose obligations are rated by the agencies pay fees for those ratings, which in turn comprises virtually all of the revenues of the rating agencies. Given the public nature of the ratings, no other business model seems feasible for rating agencies as commercial ventures, so that conflicts of interest are inherent in this important part of the financial markets infrastructure. This paper examines the nature of this conflict, how it is managed, and the significance of market structure and reputation in preventing conflict exploitation. These issues are linked to the use of ratings for regulatory certification purposes, as well as the international dimensions of debt ratings activity through investments and joint ventures of the major rating groups.
URI: http://hdl.handle.net/2451/26532
Appears in Collections:Finance Working Papers

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