A Bird’s-Eye View of the US Credit Rating Industry

Abstract

Using regulatory disclosures of rating performance statistics, this article provides a comprehensive survey of the US credit rating industry. First, the industry competitive landscape is examined, demonstrating a general increase in competition since 2006. Second, the article documents substantial rating accuracy variations across asset classes but no significant rating quality disparities among credit rating agencies (CRAs). In addition, an investor-paid CRA does not distinguish itself from issuer-paid CRAs in rating quality. Third, a negative correlation is found between CRA market shares and rating accuracy, highlighting the importance of increasing industry competition. Key Findings ▪ The US credit rating industry has become more competitive since 2006. ▪ There is negative correlation between credit rating agency market shares and rating accuracy. ▪ There are substantial rating accuracy variations among different asset classes.