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- Title
Rating Agency Fees: Pay to Play in Public Finance?
- Authors
Cornaggia, Jess; Cornaggia, Kimberly J; Israelsen, Ryan
- Abstract
We examine the relationship between credit rating levels and rating agency fees in a public finance market in which rating agencies earn lower fees and face higher disclosure requirements relative to corporate bond and structured finance markets. Controlling for variation in the complexity of credit analysis at the issue level, we find evidence that rating agency conflicts of interest distort credit ratings in the municipal bond market. Unexpectedly expensive ratings are more likely downgraded, and inexpensive ratings are more likely upgraded. The relationship between credit ratings and rating agency fees is driven by issuers who lose access to AAA insurance.
- Subjects
RATING agencies (Finance); PUBLIC finance; CREDIT ratings; BOND market; BOND insurance; CORPORATE bonds; MUNICIPAL bonds
- Publication
Review of Financial Studies, 2023, Vol 36, Issue 5, p2004
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhac073