Publications
Publications
- September 2011
- Journal of Financial Economics
How Did Increased Competition Affect Credit Ratings?
Abstract
The credit rating industry has historically been dominated by just two agencies, Moody's and S&P, leading to longstanding legislative and regulatory calls for increased competition. The material entry of a third rating agency (Fitch) to the competitive landscape offers a unique experiment to empirically examine how, in fact, increased competition affects the credit ratings market. Increased competition from Fitch coincides with lower quality ratings from the incumbents: rating levels went up, the correlation between ratings and market-implied yields fell, and the ability of ratings to predict default deteriorated. We offer several possible explanations for these findings that are linked to existing theories.
Keywords
Citation
Becker, Bo, and Todd Milbourn. "How Did Increased Competition Affect Credit Ratings?" Journal of Financial Economics 101, no. 3 (September 2011): 493–514.