Research Handbook on the Economics of Corporate Law
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Research Handbook on the Economics of Corporate Law

Edited by Claire A. Hill and Brett H. McDonnell

Comprising essays specially commissioned for the volume, leading scholars who have shaped the field of corporate law and governance explore and critique developments in this vibrant and expanding area and offer possible directions for future research.
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Chapter 15: Credit Rating Agencies and Regulatory Reform

Aline Darbellay and Frank Partnoy


Aline Darbellay and Frank Partnoy 1. INTRODUCTION The law and economics of credit ratings has been a topic of increasing importance and interest. A decade ago, few scholars were interested in the study of ratings from either a theoretical 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 use of ratings in private contracting. Ratings are widely used...

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