Notes On Credit Rating Agencies

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Literature review:
Dror Pranes (2008) said that the participants of the market have a divergent expectation. But they can be classified as optimistic or pessimistic based on set of knowledge. He also argues that the credit rating announcement does not give any undisclosed information to the investors or the market. It only attempts to homogenize the investor’s belief.
According to Adelson (2012) credit rating plays a vital role in providing an independent opinion about the creditworthiness of the issuer and bridging the gap between lenders and borrowers. Lazarescu (2003) says standardising the value judgement in relation to borrowers in the current scenario of globalisation is contributed by credit rating agency.
De Haan and Amtenbrink(2011) argued that there are flaws in the use of credit rating agencies judgement in regulation and accounting. The agencies have a substantial impact on the bonds and their interest. But when the bond is downgraded it is harmful. There will be herd behaviour among investors trying to liquidate investment. Additionally Mathis (2009) said that the construction of issuer pays is a critical problem which may result in conflict of interest. This will make the issuers to shop the ratings. They will go for the rating agency that provides the most favourable rating.
Journal of common market studies (2012) explains that the rating agencies suffer from shortcomings. The rating agencies maintain transparency about the data sources and the indicators.

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