Do Credit Rating Agencies Inflate Their Ratings? A Review

Journal of Financial Transformation, Forthcoming

29 Pages Posted: 7 Mar 2017

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Hamdi Driss

Saint Mary's University

Gordon S. Roberts

York University - Schulich School of Business

Date Written: February 13, 2017

Abstract

In this paper, we review the academic evidence on the roles and quality of credit ratings and structure our review around questions that are of interest to academics, professionals, and regulators alike. We review the evidence on how ratings affect market prices and corporate policies and discuss how incentive problems arising from the unique structure of the credit rating industry can adversely affect ratings quality. In particular, our discussion focuses on the issues of conflicts of interest, competition, and ratings shopping and their implications for ratings inflation. Our review identifies opportunities for future research on credit ratings.

Suggested Citation

Bae, Kee-Hong and Driss, Hamdi and Roberts, Gordon S., Do Credit Rating Agencies Inflate Their Ratings? A Review (February 13, 2017). Journal of Financial Transformation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2927817

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Hamdi Driss (Contact Author)

Saint Mary's University ( email )

923 Robie St.
Saint Mary's University - FISMS
Halifax, Nova Scotia B3H 3C3
Canada

HOME PAGE: http://Hamdi.Driss@smu.ca

Gordon S. Roberts

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)

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