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Ethics behind Credit Rating Agencies business and the role of regulator issues - Assignment Example

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The companies are generally rated on the basis of their performances. There are various credit rating agencies that are assigned with the responsibility of rating the companies all over the…
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Ethics behind Credit Rating Agencies business and the role of regulator issues
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"Ethics behind Credit Rating Agencies business and the role of regulator issues"

Download file to see previous pages The credit rating agencies plays an important role in assessing the credit worthiness of the company. Creditworthiness is considered as a parameter in evaluating the willingness and the capacity of the debtor to repay the debt. There are various credit rating agencies in the world. Among the various credit agencies, the three most popular and well known credit rating agencies are Standard and Poor, Fitch group and Moody’s. Each credit rating agencies has its own rating scale for ranking and rating the companies across the world (Bahena, 2010).
The Credit rating agencies played an important role in influencing and facilitating the investors to invest in the international securities. The credit rating agencies have devoted themselves in designing the structure of the agencies. The Credit rating agencies were assigned with responsibilities during the period of financial crisis prevailing in the economy. But it has been observed that the agencies were unregulated before the financial crisis. After the financial crisis the government has imposed restriction and emphasized on maintaining transparency in its rating procedures for the growth and development of the agencies.
The credit rating agencies faced criticism during the period of financial crisis, since it failed to publish verifiable and valid data about the rating performance of the companies. The criticisms encountered by the rating agencies were mainly due to the following reasons such as the underestimation of the correlation due to the default during the economic downturn, the lack of sufficient data, overreliance on the statistical and mathematical methodologies by the credit rating agencies has resulted in furnishing of inadequate data and the disregard of various conflicting interest. The credit rating agencies receives revenue from the issuers of the companies. Suppose a company is rated high by one credit rating agency as compared to other credit agency then the company will prefer to rate ...Download file to see next pagesRead More
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