Baghai & Becker on Credit Ratings

Ramin Baghai and Bo Becker have posted Reputation and Competition in the Credit Ratings Market - Evidence from Commercial Mortgage-Backed Securities on SSRN with the following abstract:

We examine a quasi-experimental setting where a rating agency (S&P) is completely shut out of a large segment of the commercial mortgage-backed securities market for more than one year, following a procedural mistake. We exploit the fact that many tranches of CMBS deals have multiple ratings. Subsequent to the drop in its business volume (but not before), S&P assigned higher ratings than other raters, in particular for large deals and for deals from important issuers. The results suggest that issuing optimistic ratings is a strategy that can be used by a rating agency with a weak reputation to gain market share in a market with strong competition.