The Death of Corporate Reputation

The Death of Corporate Reputation

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Why did the financial scandals really happen? Why are they continuing to happen? In The Death of Corporate Reputation, Yale's Jonathan Macey reveals the real, non-intuitive reason, and offers a new path forward. For over a century law firms, investment banks, accounting firms, credit rating agencies and companies seeking regular access to U.S. capital markets made large investments in their reputations. They treated customers well and sometimes endured losses in transactions or business deals in order to sustain and nurture their reputations as faithful brokers and a€œgate-keepers.a€ This has changed completely . The existing business model among leading participants in todaya€™s capital markets no longer treats customers as valued clients whose trust must be earned and nurtured, but as one-off a€œcounter-partiesa€ to whom no duties are owed and no loyalty is required . The rough and tumble norms of the market-place have replaced the long-standing reputational model in U.S. finance. This book describes the transformation in American finance from the old reputational model to the existing laissez faire model and argues that the change came as a result of three factors: (1) the growth of reliance on regulation rather than reputation as the primary mechanism for protecting customers and (2) the increasing complexity of regulation, which made technical expertise rather than reputation the primary criterion on which customers choose who to do business with in todaya€™s markets ; and (3) the rise of the a€œcult of personalitya€ on Wall Street, which has led to a secular demise in the relevance of companiesa€™ reputations and the concomitant rise of individual a€œrain-makersa€ reputation as the basis for premium pricing of financial services. This compelling book will drive the debate about the financial crisis and financial regulation for years to come -- both inside and outside the industry.subscribed to the services of credit rating agencies, and the savings from such lower capital costs were greater than the costs ... a€œFeedback Effects of Credit Ratings, a€ November 17, 2011, MIT/American Economics Association Research Paper, anbsp;...

Title:The Death of Corporate Reputation
Author: Jonathan Macey
Publisher:FT Press - 2013-03-20

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