Title: An analysis of the credit rating agencies

Authors: Stephen D'Amato

Addresses: School of Management, Marist College, 3399 North Road, Poughkeepsie, New York, 12601, USA

Abstract: Credit rating agencies play a critical role in financial markets; by rating the creditworthiness of a wide range of borrowers - from corporations to sovereigns - these agencies add liquidity to markets that would otherwise be illiquid, promote efficiency within such markets, and perhaps most importantly of all, reduce the risk of asymmetric information for investors. Standard & Poor's, Moody's and Fitch dominate the ratings industry, accounting for nearly 95% of the global market. However, in the wake of the 2008 financial crisis, these Big Three credit rating agencies have faced mounting criticism stemming from the role they played in perpetrating the crisis. The purpose of this paper is twofold: one - to analyse the role these agencies played in the 2008 financial crisis and summarise the regulations in place; and two - to evaluate their sovereign rating methodology and assess the ratings of these agencies in regards to Greece, France, and the USA.

Keywords: credit rating agencies; 2008 financial crisis; USA; United States; European Union; regulations; financial markets; creditworthiness; liquidity; asymmetric information; Greece; France.

DOI: 10.1504/IJCA.2014.064199

International Journal of Critical Accounting, 2014 Vol.6 No.3, pp.258 - 283

Published online: 30 Aug 2014 *

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