Article | Journal of Financial Economics | September 2011

How Did Increased Competition Affect Credit Ratings?


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: Credit; Governing Rules, Regulations, and Reforms; Competition; Forecasting and Prediction; Theory;


Becker, Bo, and Todd Milbourn. "How Did Increased Competition Affect Credit Ratings?" Journal of Financial Economics 101, no. 3 (September 2011): 493–514.