Credit Ratings and Competition

62 Pages Posted: 11 Mar 2020 Last revised: 6 Dec 2021

See all articles by Alessio Piccolo

Alessio Piccolo

Indiana University - Kelley School of Business

Date Written: December 5, 2021


I analyze a model of competition between credit rating agencies (CRAs). In equilibrium, investors only buy assets that received high ratings from multiple CRAs. This has two contrasting effects on the quality of certification. On the one hand, the issuer needs to pass the screening of multiple CRAs; other things being equal, this improves certification. On the other hand, it has the perverse effect of incentivizing dishonest ratings, by introducing a team dimension that dilutes the CRAs' reputational concerns. When the perverse effect dominates, competition reduces the quality of certification. However, mandating disclosure of indicative ratings can restore the first-best outcome.

Keywords: Credit rating agencies, Reputation, Competition

JEL Classification: G24, L14

Suggested Citation

Piccolo, Alessio, Credit Ratings and Competition (December 5, 2021). Available at SSRN: or

Alessio Piccolo (Contact Author)

Indiana University - Kelley School of Business ( email )

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