Centre for Finance, Credit and Macroeconomics (CFCM)
   
   
  

CFCM 18/09: What if I knew you did it? An analysis of preliminary ratings' disclosure under competition

Abstract

This paper investigates an amendment to the European Regulation mandating the disclosure of the contact between credit rating agencies (CRAs) and entrepreneurs.  If it is costly for the CRAs to become informed, the equilibrium is unique and mandatory disclosure has no effect. When the effort cost is low, disclosure affects negatively the first CRA’s decision to become informed whereas the second CRA is less (more) likely to exert effort when reputation at the outset is low (high).  With disclosure, each of the two CRAs can free ride on the other, making not exerting effort more profitable in the transparent regime.

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Authors

Marta Allegra Ronchetti


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Posted on Wednesday 7th November 2018

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