ABSTRACT

Credit ratings (CR) can play a crucial role in fi nancial markets, by regulating issuers’ access and infl uencing investor behavior; they are assessments of the likelihood that an issuer of a debt will be unable to meet its fi nancial obligations as planned, with regard to interest expenses on debt and reimbursement of principal. The credit-rating agencies (CRA) ultimately lead to a signifi cant reduction in borrowing costs for issuers, which in turn increases the overall supply of venture capital and ultimately leads to greater economic growth. The credit-rating activities have benefi ted from the globalization of fi nancial markets and especially international banking regulations, which includes them in their requirements for the establishment of bank risk (Basel II). The CRA also allow greater access to capital markets to categories of borrowers who otherwise would have been excluded: universities, hospitals, municipalities, and so on. Banks play for their customers a credit-rating activity similar to those played by CRA for fi xed-return security issuers. The CRA and banks can signifi cantly impact governance within organizations, and the effect can even be stronger for unlisted companies. The constant failures of big CRA to predict major corporate fi nancial crises are, however, shedding serious doubts on their reliability, credibility, and accountability.