The credit rating industry: competition and regulation
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| Format: | Thesis Electronic eBook |
| Language: | English |
| Published: |
2007
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| Subjects: | |
| Online Access: | Volltext Inhaltsverzeichnis |
| Physical Description: | 1 Online-Ressource |
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| adam_text | The Credit Rating Industry: Competition and Regulation 3
I Contents
I CONTENTS 3
II LIST OF FIGURES 5
III LIST OF ABBREVIATIONS 6
1 RESEARCH QUESTIONS 7
2 THE CREDIT RATING INDUSTRY , 9
2.1 Functions of Credit Rating Agencies 9
2.2 Rating Based Regulation 15
2.3 Industry Structure and its Development 17
3 THE ROLE OF REPUTATION 21
3.1 The Reputational Mechanism 21
3.2 Reputation and Market Power 28
3.2.1 The Value of Minimum Quality 28
3.2.2 Cost Structure Change 32
3.3 Transfer of Reputation 34
3.3.1 Chances of a Successful Reputation Transfer 37
3.3.2 Market Potential of Reputable Non Rating Newcomers 40
3.4 Frictions Explaining the Transfer Process... 42
3.4.1 Market Prices Above Equilibrium 43
3.4.2 Cheating Costs 45
3.5 Reputation and Growth 49
3.6 Critical Review 52
4 MARKET FORCES IN THE CREDIT RATING INDUSTRY 56
4.1 Demand in the Credit Rating Industry 56
4.1.1 Valuation of Quality 57
4.1.2 The Impact of Rating based Regulation on Demand 63
4.1.2.1 Information Value as Major Demand Driver 63
4.1.2.2 License Value as Major Demand Driver 69
4.1.2.3 Discussion Which Scenario is Right? 72
4.1.3 Network Effects 73
4.1.4 Two Rating Norm 74
4.2 supply in the Credit Rating Industry 77
4.2.1 First Mover Advantage 77
4.2.2 Lock In Effects 80
4.2.3 Economies of Scale 83
4.2.3.1 Reputation Building 84
4.2.3.2 Diversification 85
4.2.4 Diseconomies of Scale 87
4.2.5 Market Segmentation 89
4.3 Strategic Interaction 92
4.3.1 Incumbent Rating Agencies 93
The Credit Rating Industry: Competition and Regulation 4
4.3.2 Market Entrants 96
5 REASONS FOR REGULATION 98
5.1 Allocation Effects of Rating Agency Competition 99
5.1.1 Monopoly Power and Inefficiency 99
5.1.1.1 Static Efficiency 99
5.1.1.2 Social Costs 101
5.1.1.3 Dynamic Efficiency 102
5.1.2 Financial Market Instability 104
5.1.2.1 Procyclicality 105
5.1.2.2 Conformity Bias 106
5.1.2.3 Rating Triggers 107
5.1.2.4 Parallel Investors Behavior 107
5.1.2.5 Agency Failure 108
5.1.2.6 Information Provision 109
5.1.2.7 Standardization 109
5.2 Behavior of Rating Agencies 110
5.2.1 Anticompetitive Behavior 110
5.2.1.1 Unsolicited Ratings Ill
5.2.1.2 Notching and Tying 113
5.2.2 Abuse of Power the Political Dimension 115
5.2.2.1 Sources and Impact of Power 115
5.2.2.2 Sovereign Ratings 118
5.2.3 Declining Rating Quality 120
5.2.3.1 Factors Overriding Informational Quality 120
5.2.3.2 Conflicts of Interest 124
5.2.3.3 Rating Inflation 126
5.2.3.4 Timeliness 128
6 ECONOMIC ASSESSMENT OF REGULATORY OPTIONS 130
6.1 rating Based Regulation vs. Market Based Regulation 134
6.2 Fostering Competition vs. Restricting Competition 136
6.3 Official Designation vs. Registration 138
6.4 Limited Liability vs. Full Liability 142
6.5 Self Regulation vs. State Regulation 146
7 SUMMARY 149
8 APPENDIX: LITERATURE REVIEW 156
9 REFERENCES 164
The Credit Rating Industry: Competition and Regulation 5
II List of Figures
Figure 2.1: Information intermediation by credit rating agencies 10
Figure 2.2: Functions of credit rating agencies 14
Figure 3.1: Equilibrium price quality schedule 26
Figure 3.2: Intertemporal reputation returns 27
Figure 3.3: No demand for minimum quality 31
Figure 3.4: Price margin with rising cost structure 33
Figure 3.5: Transfer of existing reputation 35
Figure 3.6: Entry barriers 44
Figure 3.7: Cheating costs 47
Figure 3.8: Profitability in incumbent rating market segments 51
Figure 4.1: Individual valuation of ratings 58
Figure 4.2: License value of ratings 65
Figure 4.3: Official recognition based on quality 67
Figure 4.4: License value dominates overall value 69
Figure 4.5: Two rating norm 76
Figure 4.6: Price consumption curve of the innovator 78
Figure 4.7: Price consumption curve of the follower 79
Figure 4.8: Theoretical scope for credit rating market segmentation 89
Figure 4.9: Major elements influencing credit rating agency competition 93
Figure 6.1: Summary of regulatory concerns 130
Figure 6.2: Credit rating agency regulation in the EU and USA 133
Figure 6.3: Credit ratings vs. market based measures in credit risk based regulation 135
Figure 6.4: Business structure of rating agencies, equity analysts, and auditors 143
Figure 6.5: Demands on ratings 144
Figure 6.6: Regulatory recommendations 148
|
| adam_txt |
The Credit Rating Industry: Competition and Regulation 3
I Contents
I CONTENTS 3
II LIST OF FIGURES 5
III LIST OF ABBREVIATIONS 6
1 RESEARCH QUESTIONS 7
2 THE CREDIT RATING INDUSTRY , 9
2.1 Functions of Credit Rating Agencies 9
2.2 Rating Based Regulation 15
2.3 Industry Structure and its Development 17
3 THE ROLE OF REPUTATION 21
3.1 The Reputational Mechanism 21
3.2 Reputation and Market Power 28
3.2.1 The Value of Minimum Quality 28
3.2.2 Cost Structure Change 32
3.3 Transfer of Reputation 34
3.3.1 Chances of a Successful Reputation Transfer 37
3.3.2 Market Potential of Reputable Non Rating Newcomers 40
3.4 Frictions Explaining the Transfer Process. 42
3.4.1 Market Prices Above Equilibrium 43
3.4.2 Cheating Costs 45
3.5 Reputation and Growth 49
3.6 Critical Review 52
4 MARKET FORCES IN THE CREDIT RATING INDUSTRY 56
4.1 Demand in the Credit Rating Industry 56
4.1.1 Valuation of Quality 57
4.1.2 The Impact of Rating based Regulation on Demand 63
4.1.2.1 Information Value as Major Demand Driver 63
4.1.2.2 License Value as Major Demand Driver 69
4.1.2.3 Discussion Which Scenario is Right? 72
4.1.3 Network Effects 73
4.1.4 Two Rating Norm 74
4.2 supply in the Credit Rating Industry 77
4.2.1 First Mover Advantage 77
4.2.2 Lock In Effects 80
4.2.3 Economies of Scale 83
4.2.3.1 Reputation Building 84
4.2.3.2 Diversification 85
4.2.4 Diseconomies of Scale 87
4.2.5 Market Segmentation 89
4.3 Strategic Interaction 92
4.3.1 Incumbent Rating Agencies 93
The Credit Rating Industry: Competition and Regulation 4
4.3.2 Market Entrants 96
5 REASONS FOR REGULATION 98
5.1 Allocation Effects of Rating Agency Competition 99
5.1.1 Monopoly Power and Inefficiency 99
5.1.1.1 Static Efficiency 99
5.1.1.2 Social Costs 101
5.1.1.3 Dynamic Efficiency 102
5.1.2 Financial Market Instability 104
5.1.2.1 Procyclicality 105
5.1.2.2 Conformity Bias 106
5.1.2.3 Rating Triggers 107
5.1.2.4 Parallel Investors Behavior 107
5.1.2.5 Agency Failure 108
5.1.2.6 Information Provision 109
5.1.2.7 Standardization 109
5.2 Behavior of Rating Agencies 110
5.2.1 Anticompetitive Behavior 110
5.2.1.1 Unsolicited Ratings Ill
5.2.1.2 Notching and Tying 113
5.2.2 Abuse of Power the Political Dimension 115
5.2.2.1 Sources and Impact of Power 115
5.2.2.2 Sovereign Ratings 118
5.2.3 Declining Rating Quality 120
5.2.3.1 Factors Overriding Informational Quality 120
5.2.3.2 Conflicts of Interest 124
5.2.3.3 Rating Inflation 126
5.2.3.4 Timeliness 128
6 ECONOMIC ASSESSMENT OF REGULATORY OPTIONS 130
6.1 rating Based Regulation vs. Market Based Regulation 134
6.2 Fostering Competition vs. Restricting Competition 136
6.3 Official Designation vs. Registration 138
6.4 Limited Liability vs. Full Liability 142
6.5 Self Regulation vs. State Regulation 146
7 SUMMARY 149
8 APPENDIX: LITERATURE REVIEW 156
9 REFERENCES 164
The Credit Rating Industry: Competition and Regulation 5
II List of Figures
Figure 2.1: Information intermediation by credit rating agencies 10
Figure 2.2: Functions of credit rating agencies 14
Figure 3.1: Equilibrium price quality schedule 26
Figure 3.2: Intertemporal reputation returns 27
Figure 3.3: No demand for minimum quality 31
Figure 3.4: Price margin with rising cost structure 33
Figure 3.5: Transfer of existing reputation 35
Figure 3.6: Entry barriers 44
Figure 3.7: Cheating costs 47
Figure 3.8: Profitability in incumbent rating market segments 51
Figure 4.1: Individual valuation of ratings 58
Figure 4.2: License value of ratings 65
Figure 4.3: Official recognition based on quality 67
Figure 4.4: License value dominates overall value 69
Figure 4.5: Two rating norm 76
Figure 4.6: Price consumption curve of the innovator 78
Figure 4.7: Price consumption curve of the follower 79
Figure 4.8: Theoretical scope for credit rating market segmentation 89
Figure 4.9: Major elements influencing credit rating agency competition 93
Figure 6.1: Summary of regulatory concerns 130
Figure 6.2: Credit rating agency regulation in the EU and USA 133
Figure 6.3: Credit ratings vs. market based measures in credit risk based regulation 135
Figure 6.4: Business structure of rating agencies, equity analysts, and auditors 143
Figure 6.5: Demands on ratings 144
Figure 6.6: Regulatory recommendations 148 |
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| indexdate | 2024-07-09T21:06:05Z |
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| spelling | Dittrich, Fabian Verfasser aut The credit rating industry competition and regulation vorgelegt von Fabian Dittrich 2007 1 Online-Ressource txt rdacontent c rdamedia cr rdacarrier Köln, Univ., Diss., 2007 Kreditwesen (DE-588)4032950-1 gnd rswk-swf Rating (DE-588)4255219-9 gnd rswk-swf Ratingagentur (DE-588)4276573-0 gnd rswk-swf (DE-588)4113937-9 Hochschulschrift gnd-content Kreditwesen (DE-588)4032950-1 s Rating (DE-588)4255219-9 s Ratingagentur (DE-588)4276573-0 s DE-604 802 KB http://kups.ub.uni-koeln.de/volltexte/2007/2045/ Volltext HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=015990154&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Dittrich, Fabian The credit rating industry competition and regulation Kreditwesen (DE-588)4032950-1 gnd Rating (DE-588)4255219-9 gnd Ratingagentur (DE-588)4276573-0 gnd |
| subject_GND | (DE-588)4032950-1 (DE-588)4255219-9 (DE-588)4276573-0 (DE-588)4113937-9 |
| title | The credit rating industry competition and regulation |
| title_auth | The credit rating industry competition and regulation |
| title_exact_search | The credit rating industry competition and regulation |
| title_exact_search_txtP | The credit rating industry competition and regulation |
| title_full | The credit rating industry competition and regulation vorgelegt von Fabian Dittrich |
| title_fullStr | The credit rating industry competition and regulation vorgelegt von Fabian Dittrich |
| title_full_unstemmed | The credit rating industry competition and regulation vorgelegt von Fabian Dittrich |
| title_short | The credit rating industry |
| title_sort | the credit rating industry competition and regulation |
| title_sub | competition and regulation |
| topic | Kreditwesen (DE-588)4032950-1 gnd Rating (DE-588)4255219-9 gnd Ratingagentur (DE-588)4276573-0 gnd |
| topic_facet | Kreditwesen Rating Ratingagentur Hochschulschrift |
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