Appeared on May 8, 2007
According to the paper's co-authors, Joshua Rosner, a managing director at Graham Fisher and Co., and Joseph Mason, an associate professor of finance at Drexel University, the rating firms are likely to underestimate risk. For one, they have a disincentive to fine-tune their bond ratings because the issuers of bonds provide most of a rating agency's revenue, he said. A lower rating means higher financing costs for the issuer.