You can add this to the list of credit rating company woes: A new study has found that these companies reward clients that pay the most money in fees with more favorable ratings.

The idea that companies can pay for more favorable ratings is not anything the rating companies will ever admit to. But a study by academics at Indiana University, American University and Rice University that has found that "relative to traditional corporate bond ratings, municipal and sovereign bonds have been rated more harshly and structured products have been rated more generously. These findings exist to varying degrees throughout our entire 30-year sample period. Consistent with a conflict of interest in an issuer-pays compensation structure, ratings standards are inversely correlated with revenue generation among the asset classes."

Bloomberg notes that the industry has predictably taken a harsh view of the research, criticizing its methodology and conclusions. But as long as the current business model exists, there's no escaping criticism for a pay-for-ratings appearance in various forms. That said, the massive conflict of interest has been discussed exhaustively since the financial crisis, and critics of the industry have yet to propose a credible alternative.

The system, while broken, lacks a definitive solution, though we are seeing more credit rating oriented products emerge that collectively can help break the once iron-clad oligopoly of the industry over issuers and Wall Street and even financial regulatory bodies. The power of the agencies have been reduced, and an AAA rating means a lot less than it used to, for better or worse. For the most part, it appears that we have no choice but to live with what we've got, warts and all.

For more:
- here's the study
- here's the article

Related articles:
SEC takes credit ratings companies to task   
Was transparency lacking in S&P downgrade decision