Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90767
Authors: 
Holden, Steinar
Natvik, Gisle James
Vigier, Adrien
Year of Publication: 
2013
Series/Report no.: 
Memorandum, Department of Economics, University of Oslo 01/2013
Abstract: 
We develop a model of credit rating agencies (CRAs) based on reputation concerns. Ratings a ffect investors' choice and, thereby, also issuers' access to funding and default risk. We show that in equilibrium - the informational content of credit ratings is inferior to that of CRAs' private information. We fi nd that CRAs have a pro-cyclical impact on default risk: in a liquidity boom CRAs help resolve investors' coordination problem, and lower the probability of default; in a liquidity crunch CRAs raise the probability of default. Furthermore, rating standards tend to be pro-cyclical, while biased CRA-incentives will ultimately be self-defeating.
Subjects: 
credit rating agencies
global games
coordination failure
JEL: 
G24
G33
D82
C72
Document Type: 
Working Paper

Files in This Item:
File
Size
408.53 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.