# kaal:claim:1428387-023

**Claim.** Because rating agencies are paid by CDO issuers while the ratings' main users are buyers, the agency as agent has an incentive to issue high ratings to satisfy its issuer principal, and the buyer has no means of controlling the agency other than through its relationship with the issuer.

**Type.** mechanism  **Support.** argued

**Holds when.**

- under the issuer-pays model for structured finance ratings

**Source quote.**

> The rating agency as the agent would probably have an incentive to issue high ratings to satisfy the issuer of a CDO as its principal. The buyer as the beneficiary of the rating has no means of controlling the rating agencies and its ratings other than through its relationship with the issuer.

**From.** Kaal, *Hedge Fund Valuation Retailization, Regulation, and Investor Suitability* (2009), V.A.2 Moral Hazard of Rating Agencies, page 42

**Cite as.** Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387

**Verify.** sha256 of source PDF `6aa3a280dc6750723be2389f3af2aabf3a16c4ce20e49fcdaddd7f2ea95a67aa` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202009%20-%20Hedge%20Fund%20Valuation%20Retailization%2C%20Regulation%2C%20and%20Investor%20Suitability.pdf

**Topics.** institutional-design

**Keywords.** rating-agencies, issuer-pays, conflict-of-interest, cdo

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