Does Competition Affect Truth Telling? An Experiment with Rating Agencies

Jean Paul Rabanal · Olga A. Rud

25 citations0/0 files storedEuropean Finance Review

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Credit Risk and Financial Regulations Auditing, Earnings Management, Governance Auction Theory and Applications

Abstract

Abstract We use an experimental approach to study the effect of market structure on the incidence of misreporting by credit rating agencies. In the game, agencies receive a signal regarding the type of asset held by the seller and issue a report. The sellers then present the asset, with the report if one is solicited, to the buyer for purchase. We find that competition among rating agencies significantly reduces the likelihood of misreporting.

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2013LIES IN DISGUISE-AN EXPERIMENTAL STUDY ON CHEATING 2009The Credit Ratings Game 2011How did increased competition affect credit ratings?2006Conflicts Of Interest And The Case Of Auditor Independence: Moral Seduction And Strategic Issue Cycling 2010Markets: The Credit Rating Agencies 2009Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?2013Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India*1995The Credit Rating Industry

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