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Darbellay, Aline; Partnoy, Frank --- "Credit Rating Agencies and Regulatory Reform" [2012] ELECD 470; in Hill, A. Claire; McDonnell, H. Brett (eds), "Research Handbook on the Economics of Corporate Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Corporate Law

Editor(s): Hill, A. Claire; McDonnell, H. Brett

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449589

Section: Chapter 15

Section Title: Credit Rating Agencies and Regulatory Reform

Author(s): Darbellay, Aline; Partnoy, Frank

Number of pages: 25

Extract:

15. Credit rating agencies and regulatory reform
Aline Darbellay and Frank Partnoy



1. INTRODUCTION
The law and economics of credit ratings has been a topic of increasing importance and inter-
est. A decade ago, few scholars were interested in the study of ratings from either a theoreti-
cal or empirical perspective. Yet in recent years, research in the area has become prolific. One
reason for this increase in interest was the prominent role credit rating agencies played in the
recent financial crisis (Crouhy et al. 2008; Mathis et al. 2009; White 2009; Griffin & Tang
2009; Hill 2010a). In particular, various commentators have raised questions about the role
of rating agencies in the proliferation of structured finance products (Alexander et al. 2007;
Hunt 2009).
One important area of research has addressed the unusual hybrid gatekeeper role played
by the rating agencies as a cross between government and private providers of rating services.
Historically, ratings issued by Nationally Recognized Statistical Rating Organizations
(NRSROs) have been part of a wide range of regulatory and contractual requirements in the
United States and abroad.1 As legal requirements for ratings have proliferated, some have
argued that the rating agencies have evolved from information providers to purveyors of
`regulatory licenses' (Partnoy 1999). As this argument goes, NRSROs profit from providing
ratings that unlock access to the markets, regardless of the accuracy of their ratings.
Moreover, behavioral reliance on ratings reinforces regulatory reliance (Partnoy 2009b;
Hill 2010b). The most intriguing example of behavioral reliance is the extensive ...