American Economic Journal: Microeconomics
no. 3, August 2023
We study the implications of the disclosure regime of ratings on the level of information released to the public. Specifically, we compare mandatory and voluntary disclosure. We analyze a model where the potential issuers are initially endowed with homogeneous soft information about their values before paying to acquire ratings. We find that for every accuracy level of the issuers' initial information, voluntary disclosure results in a more informative equilibrium than mandatory disclosure. This finding identifies a dimension in which the existing European Union regulations that impose the mandatory disclosure of ratings may lead to a loss of information to the public.
Weksler, Ran, and Boaz Zik.
"Disclosure in Markets for Ratings."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Market Structure, Pricing, and Design: Monopoly
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies