Many blame the recent financial market turmoil on malfeasance of ratings agencies, who had incentives to bias their ratings. But these incentives had existed for decades. Why did the ratings bias issue only recently emerge? We model asset issuers who can cherry-pick ratings – observe multiple ratings and disclose only a subset – before auctioning their assets. When assets are simple, agencies’ ...

Regulators such as Turner (2009) have identified excessive securitization, high leverage, extensive market trading and a bonus culture, as being major factors in bringing about the bank centred financial crisis of 2007-9. The core idea of this paper is that a lack of banking knowledge and history amongst bankers, shareholders, auditors, accounting bodies, rating agencies and regulators, was als...

In much of the literature, rating agencies are seen as institutions providing informational services to the market. Our paper contributes to this literature by looking closely at the watchlist period, a particularly well-defined monitoring event. We are interested in the evolution of default risk expectations over the watchlist period. The change in the firm’s distance to default, relative to a...

This study examines whether credit default swap (CDS) trading initiation can serve as a disciplining mechanism for leading rating agencies. Specifically, we investigate agencies improve their quality when an alternative source of risk information from CDS threatens to expose inaccuracies in ratings. Understanding potential drivers is important given the prominence debt market gatekeepers and pe...