News
Moody's, Standard & Poor's, Fitch... a deep dive into the power of rating agencies
Oussama Ben Hmiden is a professor of finance and holds a doctorate in management science.
His thesis, written at the University of Bordeaux, focused on company rating methodology. He has worked as a consultant for scoring organizations.
A specialist in rating agencies, his work focuses on corporate ratings, sovereign ratings and IFRS international accounting standards. He is the author of numerous articles in national and international academic journals.
In addition to his research activities, he teaches a number of courses at ESSCA in accounting and international standards, financial management and management control.
A financial version of the ordeal of the water drop? The world of finance and politics was awaiting Fitch and Moody's verdict on France's sovereign debt on Friday April 26. Result: the rating is unchanged. The next step will be on May 31, when Standard and Poor's will give its verdict.
The focus of public debate around these announcements is an indication of the influence, and even power, wielded by these historic players in the financial rating business.
Beyond the political polemics inherent in this exercise, the role of these oracles is often criticized. The giants of financial rating (also known as credit rating), such as Moody's, Standard & Poor's and Fitch, possess a certain power that is not outrageous to question. Understanding the persistence of their structure, strengthening their regulation and increasing competition on the financial rating market are just some of the subjects addressed to better understand the reality of the financial rating industry.
Credit rating agencies provide potential investors with simple, readable and synthetic information on the risk of default by issuers, be they companies, financial institutions or governments. By estimating the risk of borrower default, rating agencies are expected to reduce the asymmetry of information between informed and uninformed or less well-informed market players, not to mention those who are not informed at all.
A symmetrical double expectation
The economic literature is based on a basic idea: information asymmetries, materialized by an informational advantage held by one of the parties in the lender-borrower relationship, justify the appearance of an intermediary capable of reducing them. On the one hand, investors and lenders expect the agencies to issue reliable, objective opinions on the credit quality of borrowers. The agencies therefore play an essential role in guaranteeing the same level of information for all. The ratings awarded by these specialized companies fill any information gaps and relieve market operators of the costs involved in processing large volumes of financial information. On the other hand, borrowers expect ratings to accurately reflect their credit quality. This dual expectation has enabled rating agencies to grow and occupy a central place in the economy, at the same time as the role of financial markets has expanded.
No comment
Log in to post comment. Log in.