Speaking of Financial Corruption

It appears that the companies on the S&P 500 list may have gotten there by paying off the ratings giant.

There is a suspicious over-representation of Standard & Poors as auditors for businesses on the list:

For some listed companies, gaining membership of a major stock index is akin to joining an exclusive club, recognition for years of hard work. But a trio of academics this week came up with a hypothesis on another way to get in: a short-cut that involves hard cash.

A working paper published by the National Bureau of Economic Research argued that companies buying credit ratings from S&P Global’s ratings business had a statistically significant impact on the likelihood of being added to the S&P 500, the benchmark index of US blue-chips run by another subsidiary, S&P Dow Jones Indices.

S&P has firmly denied the findings of the paper, titled “Is Stock Index Membership for Sale?”, calling it “flawed”. It said its two units “are separate businesses with policies and procedures to ensure they are operated independently of one another”.

The report has nonetheless drawn attention to S&P’s dual roles. As Shang-Jin Wei, a professor of finance at Columbia University and one of the NBER paper’s co-authors said, “the objectivity of a major market index is extremely important”.

………

The paper argued that many firms “appear to believe that purchasing S&P ratings . . . is helpful to their chance of being added into the index”. The academics analysed rating purchase information from S&P’s own database, alongside data from other providers including Moody’s and the University of Chicago’s Center for Research in Security Prices.

Am I being needlessly cynical in thinking that the whole ball of wax is just an elaborate scam?