Credit Ratings as Coordination Mechanisms

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Subfields: Finance

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Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing (2013, background): “…of information (e.g., Millon and Thakor (1985)); (b) certification, employed mainly for capital allocation and regulatory purposes (e.g., Bank for International Settlements (2000) and Securities and Exchange Commission (2003)); and (c) monitoring (e.g., Boot, Milbourn, and Schmeits (2006)).”
The Economic Function of Credit Rating Agencies - What Does the Watchlist Tell Us? (2010, background): “According to Boot, Milbourn, and Schmeits (2006), the watchlist procedure is the institutionalized form of this “active” monitoring process.”
Rating Agencies in the Face of Regulation (2013, unknown): “Boot, Milbourn, and Schmeits (2006) consider a model in which credit ratings can serve as a coordinating mechanism among market participants that helps implement equilibria without moral hazard on the side of the firm.”
Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?☆☆☆ (2009, background): “Boot, Milbourn and Schmeits (2006) show that credit ratings provide a “focal point”for …rms and investors, that can serve as a coordinating mechanism in situations where multiple equilibria are possible.”