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  4. October 2019
  5. Competition and Strategic Incentives in the Market for Credit Ratings: Empirics of the Financial Crisis of 2007

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Competition and Strategic Incentives in the Market for Credit Ratings: Empirics of the Financial Crisis of 2007

  • Chenghuan Sean Chu
  • Marc Rysman
American Economic Review
vol. 109, no. 10, October 2019
(pp. 3514–55)
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Abstract

We study the market for ratings agencies in the commercial mortgage backed securities sector leading up to and including the financial crisis of 2007–2008. Using a structural model adapted from the auctions literature, we characterize the incentives of ratings agencies to distort ratings in favor of issuers. We find an important equilibrium distortion, which decreased after the crisis. We study several counterfactual experiments motivated by recent policymaking in this industry.

Citation

Chu, Chenghuan Sean, and Marc Rysman. 2019. "Competition and Strategic Incentives in the Market for Credit Ratings: Empirics of the Financial Crisis of 2007." American Economic Review, 109 (10): 3514–55. DOI: 10.1257/aer.20140773

Additional Materials

JEL Classification

  • D44 Auctions
  • G01 Financial Crises
  • G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies