We show that a platform-pays mechanism can address ratings inflation and ratings shopping with minimum regulatory oversight. While we focus on ratings industry, the mechanism also applies to a setting where firms seek unbiased reports from external auditors. The mechanism has two necessary and...

This paper examines how the information quality of ratings from an issuer-paid rating agency (Standard and Poor's) responds to the entry of an investor-paid rating agency, the Egan-Jones Rating Company (EJR). By comparing S&P's ratings quality before and after EJR initiates coverage of each...

Using a natural experiment of the staggered dissemination of trading information in the corporate bond market, we find that when public disclosure increases, private information production reduces. The reduction in information production is indicated by fewer bond analyst reports, fewer pages in...

We study the market reaction to events leading up to and including the release of the SEC’s Proposed Mandatory Climate Risk Disclosures in firms’ financial statements. Our goal is to evaluate whether investors benefit from this proposal. We find the market, on average, does not react to...

This paper explores the implications of systemic risk in Credit Structured Finance (CSF). Risk measurement issues loomed large during the 2007-08 financial crisis, as the massive, unprecedented number of downgrades of AAA senior bond tranches inflicted severe losses on banks, calling into...

Using 2002–2014 insurer transactions, we provide the first empirical evidence on underwriters' allocation practices in the primary market for corporate bonds. Since bonds are often underpriced, allocations generate for investors an estimated $41 billion of first-day profits. These profits...

This paper studies how legal sanctions and enforcement affect brokers' conflicts of interest emanating from investment banking activities. We exploit the recent adoption of the Market Abuse Directive (MAD) across European countries and use the variation in legal sanctions and enforcement that...

We investigate how shocks to the reputation of credit rating agencies and the subsequent introduction of stricter regulation affect investors' reaction to rating signals. We focus on three major episodes of reputational distress: The Enron/WorldCom scandals, the subprime crisis and the lawsuit...

We develop a rational expectations model in which an issuer purchases credit ratings sequentially, deciding which to disclose to investors. Opacity about contacts between the issuer and rating agencies induces potential asymmetric information about which ratings the issuer obtained. While the...

This paper examines the effects of pre-trade opacity on market liquidity in the presence of market fragmentation. In the laboratory, we create a fragmented market by allowing trading on two venues (i.e., limit order books). By varying the features on one of the venues, we study the treatment...