What Can and Cannot Be Done about Rating Agencies

Credit Rating Agencies (CRAs) are prominent participants in the assessment of credit risk by financial markets. They determine and publish credit ratings, which represent the CRA’s opinions on issuers’ relative probability of default. The market for credit ratings is currently dominated in most western countries by three players:

From Credit Fraud to Meaningful Recovery： The Role of Credit Rating Agencies and How Auditors Might Be Affected by the Dodd-Frank Act

The way investors, banks and constituents rely on rating agencies will drastically change with the implementation of the Dodd-Frank Act. The historical background of rating agencies including potential changes in the process of issuing their reports after the Dodd-Frank act is explored by the authors. CPAs （Certified Public Accountant） audit the financial statements of Securities and Exchange Commission [SEC] regulated issuers and are subject to the provisions of the Dodd-Frank act. Accountants may have new potential liabilities with clients that rely on credit agencies representations in financial statements. Analysis is made and conclusions are drawn on the effects of new credit rating agency responsibilities and that of auditors.

Detecting conflicts of interest in credit rating changes:a distribution dynamics approach

In this study,we compare the adjustments of credit ratings by an investor-paid credit rating agency(CRA),represented by Egan-Jones Ratings Company,and an issuer-paid CRA,represented by Moody’s Investors Service,vis-à-vis conflict of interest and reputation.A novel distribution dynamics approach is employed to compute the probability distribution and,hence,the downgrade and upgrade probabilities of a credit rating assigned by these two CRAs of different compensation systems based on the dataset of 750 U.S.issuers between 2011 and 2018,that is,after the passage of the Dodd–Frank Act.It is found that investor-paid ratings are more likely to be downgraded than issuerpaid ratings only in the lower rating grades,which is consistent with the argument that investor-paid agencies have harsher attitudes toward potentially defaulting issuers to protect their reputation.We do not find evidence that issuer-paid CRAs provide overly favorable treatments to issuers with threshold ratings,implying that reputation concerns and the Dodd–Frank regulation mitigate the conflict of interests,while issuerpaid CRAs are more concerned about providing accurate ratings.

Positional statement of companies＇ corporate governance rating reports： Evidence from Turkey

The Organisation for Economic Cooperation and Development （OECD） defines corporate governance as, ＂the way in which boards oversee the running of a company by its managers, and how board members are in turn accountable to shareholders and the company.＂ In recent years the issue of corporate governance and committees related to it and their impacts on corporate performance have continued to gain widespread prominence in the capital market economy. Corporate Governance Rating is meant to indicate the relative level to which an organisation accepts and follows the codes and guidelines of corporate governance practices. The purpose of the paper is to examine the rating reports of 27 companies which have obtained the corporate governance rating by rating agencies. The study highlights that the ＂stakeholders＂ sections of the reports are the most powerful part of the reports whereas the ＂board of directors＂ sections are the weakest. Potential areas for improvements are also identified.

Alternative Rating Agency

BRICS members should establish a new independent rating agency to break the current monopoly and play a greater role in the global financial market.