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Fees, Reputation, and Rating Quality

61 Pages Posted: 23 Dec 2015 Last revised: 8 Nov 2017

Jacopo Bizzotto

University of Oslo - Department of Economics

Adrien Vigier

University of Oxford - Department of Economics

Date Written: November 3, 2017

Abstract

We study a credit rating agency with reputational concerns. We explore incentives to acquire costly information under different compensation schemes, and compare the social welfare achieved. We find that, relative to the case in which the agency is paid conditional on assigning a good rating, a policy requiring issuers to pay the agency irrespective of the rating assigned need not improve social welfare. The policy unambiguously improves social welfare if and only if the regulator also monitors the agency's choice of information acquisition (i.e., whether the agency shirks or acquires information).

Keywords: Credit Rating Agencies, Reputation, Information Acquisition.

JEL Classification: D82, D83, G24

Suggested Citation

Bizzotto, Jacopo and Vigier, Adrien, Fees, Reputation, and Rating Quality (November 3, 2017). Available at SSRN: https://ssrn.com/abstract=2707069

Jacopo Bizzotto (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Adrien Vigier

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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