Abstract

http://ssrn.com/abstract=1278150
 
 

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How Did Increased Competition Affect Credit Ratings?


Bo Becker


Stockholm School of Economics

Todd T. Milbourn


Washington University in Saint Louis - Olin Business School

September 21, 2010

Harvard Business School Finance Working Paper No. 09-051

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.

Number of Pages in PDF File: 49

Keywords: Credit ratings, competition and reputation, information quality

JEL Classification: C7, D83, G14

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Date posted: October 6, 2008 ; Last revised: September 25, 2010

Suggested Citation

Becker, Bo and Milbourn, Todd T., How Did Increased Competition Affect Credit Ratings? (September 21, 2010). Harvard Business School Finance Working Paper No. 09-051. Available at SSRN: http://ssrn.com/abstract=1278150 or http://dx.doi.org/10.2139/ssrn.1278150

Contact Information

Bo Becker (Contact Author)
Stockholm School of Economics ( email )
Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Todd T. Milbourn
Washington University in Saint Louis - Olin Business School ( email )
1 Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6392 (Phone)
314-935-6359 (Fax)
HOME PAGE: http://www.olin.wustl.edu/faculty/milbourn/
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