Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287324 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Economics and Finance [ISSN:] 1938-9744 [Volume:] 46 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2021 [Pages:] 188-206
Publisher: 
Springer US, New York, NY
Abstract: 
This paper investigates the incentives of a credit rating agency (CRA) to generate accurate ratings under an advertisement-based business model. To this end, we study a two-period endogenous reputation model in which a CRA can increase the precision of its ratings by exerting effort. The CRA receives a revenue not from rating fees, as is standard in the literature, but through online advertising. We show that the advertisement-based business model provides sufficient incentives for the CRA to improve the precision of signals at intermediate levels of reputation. Furthermore, we identify conditions under which truthful reporting is incentive compatible.
Subjects: 
Credit rating agencies
Rating precision
Information acquisition
Advertisement
Reputation
JEL: 
D82
G24
L15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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