Economic Analysis of Financial Structure - Conflicts of interest
4 important questions on Economic Analysis of Financial Structure - Conflicts of interest
What are conflicts of interests and why do we care?
Conflicts of interest primarily arise between three types of financial services: underwriting and research in investment banks, auditing and consulting in accounting firms, credit assessment and consulting in credit-rating agencies.
Why is there a conflict of interest between consulting and accounting?
- auditors might be willing to skew their judgements and opinions to win consulting business form these clients.
- auditors may be auditing information systems or tax and financial plans put in place by their non-auditiong counterparts within the firm, and therefor may be reluctant to criticise the systems or advice.
Why is there a conflict of interest when credit rating agencies asses credit and consult?
Another conflict occurs when debt issuers ast rating agencies to advice them on how to structure debt, with the goal of securing favourable ratings. No longer allowed these days.
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What has been done to cope with conflicts of interest?
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