Discussion paper

DP11508 Non-rating revenue and conflicts of interest

Rating agencies produce ratings used by investors, but obtain most of their revenue from issuers, leading to a conflict of interest. We employ a detailed panel data set on the use of non-rating services, and the associated payments, in India, to test to what extent this conflict affects credit ratings. Rating agencies rate issuers that hire them for non-rating services 0.3 notches higher (than agencies that are not hired for such services). Also, within rating categories, default rates are higher for firms that have paid for non-rating services. Both these effects are larger the larger the amount paid for non-rating services is. These results suggest that issuers which hire agencies for consulting services receive higher ratings despite not having lower credit risk.


Becker, B and R Baghai (2016), ‘DP11508 Non-rating revenue and conflicts of interest‘, CEPR Discussion Paper No. 11508. CEPR Press, Paris & London. https://cepr.org/publications/dp11508