Effect of Market Share and Sales of Credit Rating Agencies on Corporate Bonds’ Default Rates

Sammanfattning: This paper mainly explores how and if sales and increased competition among financial certifiers, namely Fitch, Standard & Poor’s and Moody’s, affect the default rate of corporate bonds. The postulated idea is that distorted credit ratings are created when competing credit rating agencies want to increase their market share or revenue. Data for econometric regressions was taken from three market leaders who have approximately 95% of total market share - Fitch, Moody’s and S&P. The data was collected from each company’s annual balance sheets and bond default rate reports. Two panel data models are constructed to test how corporate bond default rates are affected by sales and market share of credit rating companies. While market share indicated no significance on the bond default rate, the sales proved to be significant enough to increase the bond default rate in the future years. Based on these results, policy recommendations were made.