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Listen "How Transparent Ratings Shape Financial Trust"
Episode Synopsis
Dr. Sanjay Kallapur and Dr. Hariom Manchiraju, esteemed faculty members from the Indian School of Business (ISB), Hyderabad, co-authored the research study "Does Observability of Ratings Shopping Improve Ratings Quality?", which examines whether increased transparency in credit rating processes enhances the accuracy and reliability of those ratings.
India's Securities and Exchange Board of India (SEBI) implemented a groundbreaking regulation requiring companies to disclose all credit ratings, including rejected ones, to address conflicts of interest in the rating system. However, research by Prof. Sanjay Kallapur and Prof. Hariom Manchiraju reveals the policy backfired: rather than reducing rating inflation, companies shifted from explicit ratings shopping to implicit shopping by favoring lenient agencies. The result was that Type 1 errors (defaults on highly-rated bonds) increased 2.65 times, bonds with favorable initial ratings faced three times greater likelihood of downgrade within a year, and the policy ultimately distorted bank capital calculations and undermined investor confidence in ratings demonstrating how regulatory interventions can produce counterintuitive outcomes when market participants adapt strategically.
This podcast is brought to you by Global Management Consultancy. For more information, please visit www.globalmanagementconsultancy.com.
Disclaimer:
A. The background music used in this video is the property of its respective developer and is protected by Copyright. Although it is a free version, Business Talk, Global Management Consultancy and Deepak Bhatt do not hold the rights to this music.
B. Dr. Sanjay Kallapur and Dr. Hariom Manchiraju generously shared profound insights from their research, "Does Observability of Ratings Shopping Improve Ratings Quality?" during their appearance on the Business Talk podcast channel. The uploaded video contains copyrighted material; therefore, any modifications to graphics, music, or the presence of the author or host are strictly prohibited.
India's Securities and Exchange Board of India (SEBI) implemented a groundbreaking regulation requiring companies to disclose all credit ratings, including rejected ones, to address conflicts of interest in the rating system. However, research by Prof. Sanjay Kallapur and Prof. Hariom Manchiraju reveals the policy backfired: rather than reducing rating inflation, companies shifted from explicit ratings shopping to implicit shopping by favoring lenient agencies. The result was that Type 1 errors (defaults on highly-rated bonds) increased 2.65 times, bonds with favorable initial ratings faced three times greater likelihood of downgrade within a year, and the policy ultimately distorted bank capital calculations and undermined investor confidence in ratings demonstrating how regulatory interventions can produce counterintuitive outcomes when market participants adapt strategically.
This podcast is brought to you by Global Management Consultancy. For more information, please visit www.globalmanagementconsultancy.com.
Disclaimer:
A. The background music used in this video is the property of its respective developer and is protected by Copyright. Although it is a free version, Business Talk, Global Management Consultancy and Deepak Bhatt do not hold the rights to this music.
B. Dr. Sanjay Kallapur and Dr. Hariom Manchiraju generously shared profound insights from their research, "Does Observability of Ratings Shopping Improve Ratings Quality?" during their appearance on the Business Talk podcast channel. The uploaded video contains copyrighted material; therefore, any modifications to graphics, music, or the presence of the author or host are strictly prohibited.
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