Read “Related to bond rating conflicts of interest” and “Related to equity rating conflicts of interest”

Introduction

In this blog post, I’m going to talk about two topics related to bond rating conflicts of interest and equity rating conflicts of interest.

Related to bond rating conflicts of interest

The bond rating agencies are paid by the companies they rate. They are also paid by companies that issue bonds and buy them, as well as sell them.

In other words, when you invest in a bond and it pays off in the future, one of your main motivations is to earn a return on your investment (hopefully greater than what it cost). This means that there might be times when you feel like taking advantage of some sort of information asymmetry: if I know something about this company’s financial situation that others do not know? That could potentially allow me to make money from my knowledge alone!

Related to equity rating conflicts of interest

If you’re an issuer, you want a high rating from a reputable agency. That’s why there’s a conflict of interest between the issuer and the rating agency: The latter will give a low score if it doesn’t think it can make money off your stock.

If you’re an investor in an equity or fixed income fund, there are also conflicts of interest involved. For example: What if one company has two different classes of shares but both companies have the same CEO? The CEO could be biased toward giving higher ratings to his own company so that he can raise capital for future expansion rather than having investors take risks on smaller firms with fewer resources available at launch time (which could result in failure).

Finally, there is also potential corruption between insiders at different levels within these institutions where they work together as colleagues/employees/etc., which leads us back again towards questions like “Who exactly gets paid?”

Read “Related to bond rating conflicts of interest” and “Related to equity rating conflicts of interest”.

You should also read “Related to bond rating conflicts of interest” and “Related to equity rating conflicts of interest.”

Conclusion

We hope that you have learned a lot from this post. We’re always happy to hear your feedback, so feel free to reach out if you have any questions!