Credit Rating Agencies and Moral Hazard

Authors

  • Miloš Božović Center for Investments and Finance, Belgrade; University of Novi Sad, Faculty of Sciences, Serbia
  • Branko Urošević University of Belgrade, Faculty of Economics; National Bank of Serbia, Serbia
  • Boško Živković University of Belgrade, Faculty of Economics, Serbia

DOI:

https://doi.org/10.2298/PAN1102219B

Keywords:

Credit rating agencies, Solicited and unsolicited ratings, Moral hazard

Abstract

The failure of credit rating agencies to properly assess risks of complex financial securities was instrumental in setting off the global financial crisis. This paper studies the incentives of companies and rating agencies and argues that the way the current rating market is organized may provide agencies with intrinsic disincentives to accurately report credit risk of securities they rate. Informational inefficiency is only enhanced when rating agencies function as an oligopoly or when they rate structured products. We discuss possible market and regulatory solutions to these problems.

Key words: Credit rating agencies, Solicited and unsolicited ratings, Moral hazard.
JEL: D43, G14, G15, G24.

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Published

2011-10-10

How to Cite

Božović, M., Urošević, B., & Živković, B. (2011). Credit Rating Agencies and Moral Hazard. Panoeconomicus, 58(2), 219–227. https://doi.org/10.2298/PAN1102219B

Issue

Vol. 58 No. 2 (2011)

Section

Original scientific paper