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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 2010

NBER Working Paper No. w16404

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

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Date posted: October 4, 2010  

Suggested Citation

Becker, Bo and Milbourn, Todd T., How Did Increased Competition Affect Credit Ratings? (September 2010). NBER Working Paper No. w16404. Available at SSRN: http://ssrn.com/abstract=1685691

Contact Information

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

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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References:  39
Citations:  51

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