Abstract:

This paper investigates the relationship between accuracy and market share within the credit rating industry. The findings indicate that accurate CRAs are punished by the market. Statistical evidence suggests that accuracy has a negative effect on market share. The effect of market share on accuracy has also been empirically tested. These results indicate that market share does not affect accuracy. These findings refute the reputational concerns invoked by CRAs in light of conflict of interest allegations and. Further on, a distinction between investor paid and issuer paid CRAs is made. On average, the first ones perform better when it comes to accuracy. Keywords: CRAs; accuracy; market share; investor pays model.