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- Title
Advertisement-financed credit ratings.
- Authors
Hoppe-Wewetzer, Heidrun; Siemering, Christian
- Abstract
This paper investigates the incentives of a credit rating agency (CRA) to generate accurate ratings under an advertisement-based business model. To this end, we study a two-period endogenous reputation model in which a CRA can increase the precision of its ratings by exerting effort. The CRA receives a revenue not from rating fees, as is standard in the literature, but through online advertising. We show that the advertisement-based business model provides sufficient incentives for the CRA to improve the precision of signals at intermediate levels of reputation. Furthermore, we identify conditions under which truthful reporting is incentive compatible.
- Subjects
CREDIT ratings; INTERNET advertising
- Publication
Journal of Economics & Finance, 2022, Vol 46, Issue 1, p188
- ISSN
1055-0925
- Publication type
Article
- DOI
10.1007/s12197-021-09562-8