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Credit rating agencies (CRAs) play an essential role in global financial markets through the production of credit information and its distribution to market participants. However, CRAs have been heavily criticised and partly blamed for the recent crisis. In the US, CRAs were widely viewed as guilty of assigning excessively high structured finance ratings. In contrast, the criticism of CRAs during the European sovereign debt crisis was more focused on the perception that erroneous downgrades of European sovereigns led to higher borrowing costs and worsened the crisis. Regulatory efforts seek to address: low industry transparency, the oligopolistic market structure, CRAs’ business models and conflicts of interest, and most importantly the over-reliance on credit ratings, especially the mechanistic reactions induced by the regulatory certification role, hardwiring and cliff effects.
This PhD research project will investigate aspects of competition, rating shopping and rating quality, with a particular focus on the financial services sector. The drivers of the demand for multiple ratings will be examined, especially in the context of divergence in opinion across different CRAs. The research will also investigate aspects of the market impact of rating actions. The project has the potential to deliver findings of relevance to market participants, regulators and policy makers.