Advertisement-financed credit ratings

Abstract This paper investigates the incentives of a credit rating agency (CRA) to generate accurate ratings under an advertisement-based business model. To this end, we study two-period endogenous reputation model in which CRA can increase precision its by exerting effort. The receives revenue not from fees, as is standard literature, but through online advertising. We show that provides sufficient for improve signals at intermediate levels reputation. Furthermore, identify conditions truthful reporting incentive compatible.