Simultaneous Reporting of Credit Ratings

We show that requiring a credit rating agency to rate several new issuers simultaneously discourages rating inflation and increases the credibility of its ratings. When the agency rates issuers simultaneously, giving one more good rating lowers the credibility of all the good ratings it gives, diminishing issuers' willingness to pay for them and consequently the rating fee. If the number of issuers is large, this effect ensures an allocation that asymptotically approaches the first best. While the effect is present under sequential rating, it is weaker than under simultaneous rating. We show that it may be worthwhile to synchronize the issuance of corporate bonds so as to benefit from simultaneous rating.