ENDOGENOUS SOURCES OF CONFLICTS OF INTEREST ARISING IN THE ACTIVITIES OF CREDIT RATING AGENCIES

M. А. Rebryk, Ju. S. Rebryk

Abstract


The positive effect of the functioning of credit rating agencies (CRAs) increases only if they are focused on maximizing information quality of ratings. Instead, CRAs’ reorientation to the maximization of profits in the short term can generate significant negative externalities. One of the key reasons for shifting of outlined focus could be conflicts of interest, generated by the influence of exogenous and endogenous factors. Given that the possibility of rapid and effective reduction of exogenous factors’ influence is significantly limited, the study of endogenous sources of conflicts of interest becomes relevant for their further localization and elimination.

The paper identifies that the main endogenous sources of conflicts of interest could be localized both at the corporate, and operational levels of CRAs’ functioning. At the corporate level conflicts of interest are usually generated due to the existence of significant pitfalls in the models of ownership, business and financial activities, transparency, corporate governance and organizational structures of CRAs. In turn, at the operational (analyst) level the main sources of conflicts of interest are the violation of the principle of the independence of analysts and other employees of CRAs, as well as their personal interest in the manipulation with ratings.

Taking into account the specifics of outlined endogenous sources in their interconnection will contribute to designing of a comprehensive system of preventive and reactive tools to manage conflicts of interest by the owners, managers, and regulators of CRAs.


Keywords


credit rating agencies; CRAs; conflicts of interest; CRA independence; rating inflation; unsolicited ratings; “subscriber-pays” model

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References


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GOST Style Citations


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DOI: https://doi.org/10.18371/fcaptp.v2i25.136545

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