Studentships
Business School
An Expectations Gap in Credit Ratings?
Professor Angus Duff
angus.duff@uws.ac.uk
Credit rating agencies (CRAs) have been the subject of significant criticism from commentators, regulators and politicians. The catalyst was their inability to foresee the Asian crisis of 1997, followed by their slowness in downgrade the securities of fallen corporate giants such as WorldCom and Enron in the early part of this century. However, their role in the US sub-prime mortgage crisis of 2007, and the subsequent downfall of Northern Rock, attracted more criticism on a global basis.
Criticism of CRAs may result from CRAs failing to meet society’s expectations of them. It may be that society’s expectations are unreasonable, or that their expectations are reasonable, but CRAs’ existing formal and voluntary responsibilities do not fulfil these expectations. Alternatively, it may be that CRAs do not perform these responsibilities to a satisfactory level. Whatever the cause of the gap between expectations of CRAs and the perception of CRAs’ performance (expectation-performance gap), the dissatisfaction with CRAs’ performance undermines confidence in the ratings industry and the value of credit ratings.
This studentship will investigate the structure, composition and extent of the CRA expectation-performance gap in the UK and make recommendations as to how the gap may be closed.