Corporate Social Responsibility in Credit Rating Agencies: How to Manage Areas of Conflict and Conflicts of Interest in a Responsible Way

2014 ◽  
Vol 7 (1) ◽  
pp. 35-55
Author(s):  
Mustafa KAVAS ◽  
Sinem KALENDER
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Credit Rating ◽  
Conflicts Of Interest ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Corporate Social

Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies

2007 ◽  
Vol 22 (3) ◽  
pp. 469-492 ◽  
Author(s):  
Carol Ann Frost
Keyword(s):  
Credit Rating ◽  
Conflicts Of Interest ◽  
Securities And Exchange Commission ◽  
Future Research ◽  
Minor Role ◽  
Credit Rating Agencies ◽  
Regulatory Oversight ◽  
Rating Agencies ◽  
Accounting Scandals ◽  
A Minor

This study assesses the validity of widespread criticisms of the large, “nationally recognized” credit rating agencies (CRAs). The accounting scandals of 2000-02, in particular the highly publicized failure of Enron in December 2001, led many to question their competence and the value of their ratings. This paper evaluates important criticisms of the CRAs discussed in a recent Securities and Exchange Commission (SEC) staff report by using evidence from empirical research studies, and suggests many promising subjects for future research. The analysis given in this paper, and the results of the suggested research (when available), should be of particular interest to lawmakers and regulators who are responsible for determining whether and to what extent the credit rating industry should be subject to statutory and regulatory oversight. Although little rigorously gathered empirical evidence supports the criticisms, many issues remain unresolved. Powerful tests related to potential conflicts of interest and alleged unfair practices are exceptionally difficult to design, and the alleged deficiencies of rating agencies' disclosure practices have yet to be analyzed. Finally, many criticisms are based on subjective benchmarks that are difficult to quantify and open to question. To date, however, accounting researchers have played only a minor role in the debate. Because they are well-versed in such areas as disclosure analysis, capital market tests, and the operation of financial intermediaries and external auditors, these researchers potentially have much to add in this regard.

scholarly journals Lessons From The Current Financial Crisis: Should Credit Rating Agencies Be Re-Structured?

2010 ◽  
Vol 8 (7) ◽  
Author(s):  
Josh Wolfson ◽  
Corinne Crawford
Keyword(s):  
Credit Rating ◽  
Conflicts Of Interest ◽  
The United States ◽  
Business Community ◽  
Credit Rating Agencies ◽  
Housing Bubble ◽  
Rating Agencies ◽  
Total Lack ◽  
Current Financial Crisis ◽  
Asset Backed Securities

<p class="MsoNormal" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; color: black; font-size: 10pt; mso-themecolor: text1;">Credit rating agencies are considered the gatekeepers to the financial markets; however, these agencies have come under increasing attack in the past few years by investors, regulators and the business community.<span style="mso-spacerun: yes;">&nbsp; </span>The United States Senate has accused the credit rating agencies of flawed methodology, weak oversight by regulators, conflicts of interest and a total lack of transparency.<span style="mso-spacerun: yes;">&nbsp; </span>The Senate review concluded that the problems with the credit rating agencies were responsible for contributing to the housing bubble by awarding AAA ratings to complex, unsafe asset backed securities and other derivatives, thereby magnifying the financial shock when the housing bubble finally burst. In this article, we will explore how the credit rating agencies obtained, and, as many feel, misused their power.<span style="mso-spacerun: yes;">&nbsp; </span>In addition, we will outline currently proposed legislative and regulatory solutions.</span></p>

Corporate Social Responsibility and Sustainable Finance

2021 ◽  
Author(s):  
Hao Liang ◽  
Luc Renneboog
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Corporate Management ◽  
Socially Responsible ◽  
Firm Level ◽  
Investment Projects ◽  
Portfolio Decisions ◽  
Rating Agencies ◽  
Proxy Voting ◽  
Corporate Social

Corporate social responsibility (CSR) refers to the incorporation of environmental, social, and governance (ESG) considerations into corporate management, financial decision-making, and investors’ portfolio decisions. Socially responsible firms are expected to internalize the externalities they create (e.g., pollution) and be accountable to shareholders and other stakeholders (employees, customers, suppliers, local communities, etc.). Rating agencies have developed firm-level measures of ESG performance that are widely used in the literature. However, these ratings show inconsistencies that result from the rating agencies’ preferences, weights of the constituting factors, and rating methodology. CSR also deals with sustainable, responsible, and impact investing. The return implications of investing in the stocks of socially responsible firms include the search for an EGS factor and the performance of SRI funds. SRI funds apply negative screening (exclusion of “sin” industries), positive screening, and activism through engagement or proxy voting. In this context, one wonders whether responsible investors are willing to trade off financial returns with a “moral” dividend (the return given up in exchange for an increase in utility driven by the knowledge that an investment is ethical). Related to the analysis of externalities and the ethical dimension of corporate decisions is the literature on green financing (the financing of environmentally friendly investment projects by means of green bonds) and on how to foster economic decarbonization as climate change affects financial markets and investor behavior.

Do Korean chaebols practice noblesse oblige? Evidence from their CSR activities

2021 ◽  
Vol 10 (1) ◽  
pp. 45-57
Author(s):  
Denis Yongmin Joe ◽  
Jiyoung Lee ◽  
Frederick Dongchuhl Oh
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Credit Rating ◽  
Economic Justice ◽  
Corporate Social

This study analyzes the corporate social responsibility (CSR) activities of the Korean chaebols to establish whether these firms engage in social duties and practice noblesse oblige. To measure the extent of the CSR activities, we use the index of the Korean Economic Justice Institute (KEJI) from 2005 to 2017. We find that the level of the CSR activity among chaebol firms with weak governance is low. Moreover, we show that chaebol firms with credit rating concerns reduce their CSR activities. Overall, our results indicate that Korean chaebols tend to neglect the CSR activities.

Corporate social responsibility: from labour law to consumer law

2004 ◽  
Vol 10 (3) ◽  
pp. 401-415 ◽  
Author(s):  
André Sobczak
Keyword(s):  
Developing Countries ◽  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Conflicts Of Interest ◽  
Social Rights ◽  
Labour Law ◽  
Labour Relations ◽  
Consumer Law ◽  
Corporate Social ◽  
Labour Regulation

Corporate social responsibility (CRS) modifies the balance between different branches of law. Indeed, CSR instruments are indicative of the inroads made by commercial and consumer law into the field of labour relations. This paper argues that this shift from labour law to consumer law is not neutral and has more than a purely theoretical impact. It means not only that the existing law is more likely to protect consumers (in Europe or North America) than workers (in developing countries). It may lead to conflicts of interest between the company's different stakeholders, especially between workers and consumers, and also to a selective form of labour regulation, since consumer pressure affects only some companies and some social rights while neglecting others.

Credit coordinate ratings with corresponding credit rating agencies and regulations

2014 ◽  
Vol 01 (01) ◽  
pp. 1450002 ◽  
Author(s):  
Weiping Li
Keyword(s):  
Voluntary Disclosure ◽  
Credit Rating ◽  
Conflicts Of Interest ◽  
Natural Extension ◽  
Necessary Condition ◽  
Credit Rating Agencies ◽  
No Arbitrage ◽  
Absolute Value ◽  
Rating Agencies ◽  
Default Rate

This paper develops a coordinate rating for Credit Rating Agencies (CRAs) in the rating market. We first show that there is a necessary condition for the restructured sub-portfolios to have no-arbitrage principle for coordinate ratings. The coordinate rating is not only a natural extension of a single rating, but also reduces the rating bias and increases the rating accuracy. We solve the voluntary-disclosure decision problem for the issuer in terms of coordinate ratings. Furthermore, we show that the complexities of sub-portfolios do reduce the incentive to shop for the coordinate rating by comparing it with the incentive to shop for a single rating. The correlation among sub-portfolios also affect the incentive to shop in the coordinate rating. We advocate four principles for the credit rating system, from adapting coordinate ratings and reducing conflicts of interest to encouraging competition among CRAs and ensuring incentive alignment. We also build a model with disapproval correlation among CRAs and show that the probability of the joint disapproval is extremely sensitive to the disapproval correlation, even though the correlation may be very small in absolute value. Under an approval arrangement from the regulator in terms of the default rate within a CRA, we show that there exists a sub-game perfect equilibrium in which both approved CRAs provide correct coordinate ratings.

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