Conflicts of Interest, Low-Quality Ratings, and Meaningful Reform of Credit and Corporate Governance Ratings

October 2009 – A report by Professors Charles W. Calomiris and Joseph R. Mason
Policymakers and academic critics have identified “conflicts of interest” in the rating industry that have led to poor ratings quality, harming investors who purchase over- or mis-rated investments. In this report the authors address the question of whether conflicts of interest can arise in the ratings industry without the monopoly benefit conferred by regulatory licenses like those given credit rating agencies that operate as Nationally Recognized Statistical Ratings Organizations (NRSRO). The authors show that incentive conflicts are apparent in the corporate governance rating industry, despite the lack of a formal regulatory role for the agencies.

 

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