ScholarWorks@중앙대학교

초록

Undoubtedly, credit information mitigates information asymmetry for financial transactions amongst financial market participants. Based on the credit information, evaluation made by a credit rating agency of the debt issuer’s ability to pay back the debt is the key concept of credit ratings. The global financial crisis of 2007~2008 has called attention to the causes of ratings failures and the conflicts of interest in the credit ratings industry. For example, Mason and Rosner (2007) show that the big three ratings agencies are often confronted with an array of conflicting incentives,which can affect choices in subjective measurements of risk. They also analyze the fundamental differences in rating structured finance products vs. traditional products; the resulting inefficiencies of rating structured finance products cause investors to discredit U.S. markets. Therefore,accurate ratings and supporting policy measures are necessary to achieve efficiency and stability of the financial industry. Underlying fundamental causes for these rating failures are suspected to be the rating inflations mainly caused by the issuer-pay system as noted by a number of researchers. If issuers can easily switch to other rating agencies and shop for the best ratings, any rational rating agency has incentives to assign ratings favorable to issuers. Thus issuer-pay system is mainly blamed for rating failures. However, Skreta and Veldkamp (2009)argue that more important cause is not the fee system but the complexity of securities rated, which facilitates rating shopping. Interestingly, there is no consensus yet regarding the effect of competition on the credit rating industry. Recent studies lend a greater support to the negative effect of competition than to the positive effect of it. Most of the positive effect of competition is based on the argument that basic industrial economics predicts tacit collusion between the incumbents, leading to a high price equilibrium (Dittrich, 2007). White (2009) also points out that due to legislation of NRSRO competition is highly limited in the credit rating industry. On the contrary, the negative effect of competition is based on the argument that competition aggravates rating inflations (Skreta and Veldkamp,2009; Camanho et al., 2010). More recently, Bolton et al. (2012) show that competition can reduce efficiency, as it encourages ratings shopping. Similarly, Becker and Milbourn (2011) find that competition leads to lower quality in the ratings market. Using data of the collapse of the credit ratings of ABS CDOs, Benmelech and Dlugosz (2010) argue that tranches rated solely by one agency, and by S&P in particular, were more likely to be downgraded by January 2008 and tranches rated solely by one agency are more likely to suffer more severe downgrades. This study implies that mandatory multiple ratings are helpful in mitigating rating inflation problem. We analyze causes of ratings failures such as rating inflations and other problems arising from the oligopolistic market structure of the Korean credit rating industry. We find that the three big credit rating agencies in Korea seem to enjoy a high degree of oligopolistic market power at the first glance. However, compared to the global rating agencies, some qualifications seem necessary. It is mainly based on the fact that the Korean credit rating agencies have similar business models and thus similar market shares, so that they are less specialized and small compared to the global rating agencies. We also provide some evidence of rating inflations caused by Korean rating agencies although the most of the financial products are simple to be evaluated in Korea. Our main results imply that globally recommended regulatory measures should be adapted with some modification to the credit rating industry in Korea and the competitiveness of the industry should be strengthened through, for example, maintaining the requirement of multiple credit ratings,and introducing a forced rotation of credit rating agencies. They also imply that issuers’ disclosure regarding the underlying asset pools of structured finance products is expected to help investors to make their own credit risk assessment, rather than leaving them to rely solely on external ratings.

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