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A blog on financial markets and their regulation
Consider three alternative descriptions of what happened to the big global rating agencies during the early 2000s:
I find Partnoy’s paper the most convincing despite its total lack of econometrics. The sophisticated difference-in-difference econometrics of the other two papers is, in my view, vitiated by reverse causation. When rating becomes “a much more valuable franchise than other financial publishing” as Partnoy showed, there would be greater pressure to do an IPO and also greater willingness to disregard any adverse reputational effects on other publishing businesses of the group. Similarly, the structural changes in the industry would invite greater competition from previously peripheral players like Fitch who happen to hold the same regulatory licence.