Don't Shoot The Rating Agencies Forbes (blog)
In the agencies’ original business of rating corporations’ bonds, Point #3 about a conflict of interest in the issuer-pay model is largely hypothetical. If a company needs to sell a few hundred million dollars worth of public bonds, it has little choice but to obtain ratings from at least Moody’s and S&P. Failure to do so would arouse suspicions that the company ducked the agencies because its financial condition would have resulted in a poor rating. Consequently, the issuer has no bargaining power with which to angle for a higher rating than its fundamentals justify, notwithstanding its position as the check writer. The agencies get paid, whether or not they assign a rating that the company deems acceptable. They have no incentive to sacrifice credibility, which is an invaluable asset in their line or work.Things might be different if the agencies’ critics got their wish and more competitors entered the business. Perhaps one of the newcomers would pursue a strategy of taking market share from the incumbent firms by systematically awarding higher ratings. That business model would please the companies, but it would constitute a disservice to investors.
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JoongAng DailyAn insurance firm built on a deep affection for educationJoongAng DailyHe was president of Kyobo Auto Insurance from 2002 to 2006. Kyobo Securities is engaged in the provision of financial services, especially to the investment
