Credit Ratings and Market Information

115 Pages Posted: 11 Apr 2017 Last revised: 13 Dec 2021

See all articles by Alessio Piccolo

Alessio Piccolo

Indiana University - Kelley School of Business

Joel D. Shapiro

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 10, 2021

Abstract

Accurate credit ratings are important for both investors and regulators. We demonstrate that the market for credit risk provides an important source of discipline for credit rating agencies (CRAs). We examine a model in which a CRA's rating is followed by a market for credit risk that provides a public signal -- the price. More-informative trading increases the CRA's incentives to be accurate by making rating errors more transparent. We show that this source of discipline is (i) robust to moral hazard, multiple CRAs, and connected primary and secondary markets; and (ii) specific to the market for credit risk.

Keywords: Credit Ratings, Information, Reputation

JEL Classification: G24, G28

Suggested Citation

Piccolo, Alessio and Shapiro, Joel D., Credit Ratings and Market Information (December 10, 2021). Available at SSRN: https://ssrn.com/abstract=2948890 or http://dx.doi.org/10.2139/ssrn.2948890

Alessio Piccolo

Indiana University - Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
+18123914734 (Phone)

HOME PAGE: http://https://kelley.iu.edu/faculty-research/faculty-directory/profile.cshtml?id=APICCOL

Joel D. Shapiro (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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