COMPARISON OF CHANGES IN S&P’S CREDIT RATINGS IN RESPONSE TO ENTRIES OF INVESTOR-PAID AND ISSUER-PAID AGENCIES

This paper examines the impact of increased competition in the credit rating industry on the rating quality of existing rating agencies. I compare the changes of S&P’s rating informativeness in response to entries of issuer-paid and investor-paid agencies by calculating the stock market reactions to S&P’s rating change announcements during different stages. My analyses show that the entry of Fitch, an issuer-paid agency, significantly weakened the stock market reactions, and the entry of EJR, an investor-paid agency, slightly slowed down but did not reverse the decreasing trend as well.Bachelor of Scienc