Dueling Conflicts: Does Empowering Shareholders Always Increase Value? A Skeptical Perspective

Policymakers and academic critics have identified "conflicts of interest" in the rating industry that have led to poor ratings quality, harming investors who purchase over- or mis-rated investments. We address the question of whether conflicts of interest can arise in the ratings industry without the monopoly benefit conferred by regulatory licenses like those given credit rating agencies that operate as Nationally Recognized Statistical Ratings Organizations (NRSRO). We show that incentive conflicts are apparent in the corporate governance rating industry, despite the lack of a formal regulatory role for the agencies.