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The Existing and Proposed Credit Rating Agency (CRA) Business Models and Compensation Models Are Inefficient

The Existing and Proposed Credit Rating Agency (CRA) Business Models and Compensation Models Are Inefficient

Copyright: © 2021 |Pages: 41
ISBN13: 9781799874188|ISBN10: 1799874184|ISBN13 Softcover: 9781799874195|EISBN13: 9781799874201
DOI: 10.4018/978-1-7998-7418-8.ch007
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MLA

Michael I. C. Nwogugu. "The Existing and Proposed Credit Rating Agency (CRA) Business Models and Compensation Models Are Inefficient." Complex Systems and Sustainability in the Global Auditing, Consulting, and Credit Rating Agency Industries, IGI Global, 2021, pp.211-251. https://doi.org/10.4018/978-1-7998-7418-8.ch007

APA

M. Nwogugu (2021). The Existing and Proposed Credit Rating Agency (CRA) Business Models and Compensation Models Are Inefficient. IGI Global. https://doi.org/10.4018/978-1-7998-7418-8.ch007

Chicago

Michael I. C. Nwogugu. "The Existing and Proposed Credit Rating Agency (CRA) Business Models and Compensation Models Are Inefficient." In Complex Systems and Sustainability in the Global Auditing, Consulting, and Credit Rating Agency Industries. Hershey, PA: IGI Global, 2021. https://doi.org/10.4018/978-1-7998-7418-8.ch007

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Abstract

Credit ratings agencies (CRAs) are prone to various antitrust and conflict-of-interest problems that arise from their regulation and their business and compensation models. CRAs have played a critical role in global capital markets for the last few decades, and the inefficiencies inherent in the compensation contracts, and business models of CRAs were clearly illustrated during the Global Financial Crisis of 2007-2011, during which ABS trusts and some large companies suddenly defaulted without prior downgrades of their ratings – it's well known that markets often price in potential defaults or down-grades before CRAs revise their ratings downwards. This chapter explores the inefficiencies of the existing and proposed CRA business models and compensation models.

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