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Bond rating agencies have invested significant sums of money in an effort to determine which quantitative...

Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and nonquantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issues bond rating. To recoup those costs, some bond rating agencies have tied their ratings to the purchase of additional services. Do you believe that this is an acceptable practice? Defend your position.

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In my opinion this is not an acceptable practice because it impacts the independence of the credit rating agencies. The Agencies rate the credibility of various organisations and hence they provide very valuable information to the users of this information. The credit ratings assigned to various organisations are expected to be unbiased and true.

However when the agencies tie the ratings to the Purchase of additional services they become biased towards the companies which are giving them this additional business. This will hinder their Independence and impact the ratings that are assigned to those companies which are bringing them more business and increasing their profitability. So the credit rating Agencies should not bias themselves by connecting the ratings to the additional services.

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  • Bond rating agencies have invested significant sums of money in an effort to determine which quantitative...

    Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and nonquantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issues bond rating. To recoup those costs, some bond rating agencies have tied their ratings to the purchase of additional services. Do you believe that this is an acceptable practice? Defend your...

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