This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under ...This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under the upfront fee scheme,the CRA obtains an upfront fee in exchange for its services but gains a performance-based fee only if its ratings accurately foresee the rated project’s outcome.In the setting,an issuer solicits a rating from the CRA,whose conduct of inflating and deflating ratings is considered.In addition,the CRA can endogenously exert effort to observe a project’s signal,which specifies the signal accuracy and how much operating costs the CRA incurs.After receiving the observed signal,the CRA can strategically decide to announce a rating corresponding to or contradicting the observed signal.The findings reveal that the performance-based fee scheme incentivizes the CRA to exert greater effort and truthfully disclose a more accurate rating.展开更多
文摘This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under the upfront fee scheme,the CRA obtains an upfront fee in exchange for its services but gains a performance-based fee only if its ratings accurately foresee the rated project’s outcome.In the setting,an issuer solicits a rating from the CRA,whose conduct of inflating and deflating ratings is considered.In addition,the CRA can endogenously exert effort to observe a project’s signal,which specifies the signal accuracy and how much operating costs the CRA incurs.After receiving the observed signal,the CRA can strategically decide to announce a rating corresponding to or contradicting the observed signal.The findings reveal that the performance-based fee scheme incentivizes the CRA to exert greater effort and truthfully disclose a more accurate rating.
