Information effect of entry into credit ratings market: The case of insurers' ratings

• 成果类型: Article
• 署名作者: Doherty, Neil A.; Kartasheva, Anastasia V.; Phillips, Richard D.
• 署名单位: University of Pennsylvania; University System of Georgia; Georgia State University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2012.05.012
• 发表日期: 2012
• 页码: 308-330
• 关键词: Ratings; COMPETITION; information disclosure; insurance

摘要

The paper analyzes the effect of competition between credit rating agencies (CRAs) on the information content of ratings. We show that a monopolistic CRA pools sellers into multiple rating classes and has partial market coverage. This provides an opportunity for market entry. The entrant designs a rating scale distinct from that of the incumbent. It targets higher-than-average companies in each rating grade of the incumbent's rating scale and employs more stringent rating standards. We use Standard and Poor's (S&P) entry into the market for insurance ratings previously covered by a monopolist, A.M. Best, to empirically test the impact of entry on the information content of ratings. The empirical analysis reveals that S&P required higher standards to assign a rating similar to the one assigned by A.M. Best and that higher-than-average quality insurers in each rating category of AM. Best chose to receive a second rating from S&P. (C) 2012 Elsevier B.V. All rights reserved.