2025/12/01 by Zsófia Barta · 1 voice
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Insolvency and Governance #Credit Risk and Financial Regulations #Financial Distress and Bankruptcy Prediction
paper · doi:10.1080/13563467.2025.2594707
openalex publication_date 2025/12/01 · openalex created_date 2025/12/02 · openalex updated_date 2026/06/14
What explains the enduring market influence of Moody’s, S&P and Fitch despite their conspicuous role in repeated crises? This paper argues that both the recurrent failures and the resilient authority of the ‘Big Three’ rating agencies should be understood not in terms of credit assessment failure and regulatory permissiveness but in terms of the systemic role that ratings play as a coordination mechanism providing an anchor for market participants’ expectations about ‘safe assets’. This coordination mechanism is vulnerable to failure not because of poorly assessed fundamentals but because of liquidity cycles, in which ratings are validated during the expansionary phase and rendered catastrophically wrong when liquidity dries up. Since failures are inherent in the essential function ratings perform, they are bound to plague any potential alternatives to the ratings of the Big Three, too. Therefore, neither markets nor regulators have incentives to challenge the entrenched position of the Big Three.