Ratings Competition in the CMBS Market

We consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage‐backed securities (CMBS) using data from 2002 to 2007. We characterize competition using Fitch's aggregate share of CMBS ratings and a measure of Fitch's deal‐specific market share constructed as the probability of Fitch being hired for a specific transaction. Controlling for deal characteristics, we find that subordination levels were lower when Fitch's aggregate and deal‐specific market shares were higher, which suggests that ratings competition yielded less stringent ratings when Fitch was a more significant competitor, although this effect dissipates when Fitch's market shares were high.     

Bond Yields, Ratings, and Financial Information: Evidence from Public Utility Issues

This study investigates the relative roles of bond ratings and financial information in the setting of bond yields. Structural equation modeling techniques are used to learn whether ratings determine yields or whether both ratings and yields are determined by a concurrent set of economic and financial factors. Tests of alternative structural model configurations provide evidence regarding the associations between bond ratings, financial information, and bond yields. Both ratings and financial information are found to play an important role in determining bond yields. In addition, yields are consistent with the higher rating in cases of split ratings.     

CMBS Subordination,Ratings Inflation,and Regulatory‐Capital Arbitrage

Using detailed origination and performance data on a comprehensive sample of commercial mortgage‐backed security (CMBS) deals, along with their underlying loans and a set of similarly rated residential mortgage‐backed securities (RMBS), we apply reduced‐form and structural modeling strategies to test for regulatory‐capital arbitrage and ratings inflation in the CMBS market. We find that the spread between CMBS and corporate‐bond yields fell significantly for ratings AA and AAA after a loosening of capital requirements for highly rated CMBS in 2002, whereas no comparable drop occurred for lower rated bonds (which experienced no similar regulatory change). We also find that CMBS rated below AA upgraded to AA or AAA significantly faster than comparable RMBS (for which there was no change in risk‐based capital requirements). We use a structural model to investigate these results in more detail and find that little else changed in the CMBS market over this period except for the rating agencies' persistent reductions in subordination levels between 1997 and late 2007. Indeed, had the 2005 vintage CMBS used the subordination levels from 2000, there would have been no losses to the senior bonds in most CMBS structures.     

Are Unsolicited Credit Ratings Lower? International Evidence From Bank Ratings

Abstract:   In recent years credit rating agencies have started rating firms who have not asked for a rating. Recipients of unsolicited ratings argue that the assigned ratings are too low and reflect a lack of comprehensive knowledge of the rated firms. We set out to examine these claims using a comprehensive and international sample of 1,060 bank ratings. Our results show that there is a significant difference in the distributions of ratings, and the shadow group has lower ratings. The results also indicate that banks that received shadow ratings are smaller and have weaker financial profiles than banks that have other ratings. This explains, in part, the lower ratings. In addition, we develop a model to explain bank ratings. The two‐step treatment effects model shows that bank size, profitability, asset quality, liquidity, and sovereign credit risk are important factors in determining bank ratings.     

Testing for Opaqueness in the European Banking Industry: Evidence from Bond Credit Ratings

The question of whether banks are relatively more opaque than non-banking firms is empirically investigated by analyzing the disagreement between rating agencies (split ratings) on 2,473 bonds issued by European firms during the 1993–2003 period. Four main results emerge from the empirical analysis. First, fewer bank issues have split ratings overall, but the predicted probability of a split rating is higher for banks after controlling for risk and other issue characteristics. Second, subordinated bonds are subject to more disagreement between rating agencies. Third, bank opaqueness increases with financial assets and decreases with bank fixed assets. Fourth, bank opaqueness increases with bank size and capital ratio. The implications of these findings for regulatory policy are also discussed. All errors remain those of the author. This paper was prepared while the author was visiting the Department of Finance, Insurance and Real Estate at the Graduate School of Business Administration, University of Florida.     

承销商声誉、信息不对称和新股抑价:基于板块的新发现

我们采用2004年到201 1年上市的1,025个新股样本检验了承销商声誉和新股抑价程度之间的联系.我们发现,虽然新股抑价程度和承销商声誉表面上存在负相关,但是一旦控制了和板块相关、和年份相关的固定效应以后,这一负相关的显著性明显减弱甚至消失.我们还发现,主板新股抑价程度随着承销商声誉的提高而增加,中小板和创业板新股抑价程度则随着承销商声誉的提高而降低.对于相同的承销商声誉,中小板新股抑价程度的降低幅度似乎要大于创业板新股.我们认为这些结果和承销商声誉假说是不一致的,承销商没有起到降低信息不对称成本的作用.     

Cross‐Listed Bonds,Information Asymmetry,and Conservatism in Credit Ratings

We propose information asymmetry as an additional explanation for rating conservatism. Because information asymmetry is likely higher for cross‐listed bonds than for U.S. bonds, we expect and find that cross‐listed bonds are rated more conservatively than U.S. domestic bonds at issuance. Further, cross‐listed bonds receive less frequent upgrades and take longer to be upgraded after issuance. Because lower ratings might also reflect higher default risk based on agencies’ private information, we conduct additional tests to discriminate between the rating conservatism and private information explanations. The results are consistent with ratings conservatism and inconsistent with the private information explanation.     

Effect of the Sovereign Credit Ratings in East Asia Countries: Evidence from Panel Vector Autoregression

We study the effect of the sovereign credit ratings on the economies of seven East Asian countries, applying panel vector autoregression (VAR). We find that rating has less effect than outlook of rating on the credit default swap (CDS) spreads, the stock indexes, and the GDP growth rates. Rating upgrade and positive outlook have stronger effects than rating downgrade and negative outlook, and the effects of positive outlook and rating are greater after the financial crisis. There is evidence of contagion in that the economic variables of a country seem to have been affected by the outlooks of the other countries.     

Value Creation through Securitization: Evidence from the CMBS Market

Despite recent volatility and constraints in secondary market funding, analysts have ascribed substantial value creation to the securitization of commercial mortgages. Such value creation likely emanates from liquidity enhancements, regulatory arbitrage, price discrimination and risk diversification by pooling and tranching, gains from specialization in origination, servicing, and holding of mortgages, and the like. Indeed, such value creation would be consistent with past accelerated growth in the mortgage- and asset-based securities markets and the sizable profits earned by secondary market intermediaries. In this paper, we estimate the pricing effects of commercial mortgage securitization. We do so by applying loan level data from 1992–2003 to compare the pricing of conduit and portfolio loans held in CMBS structures. In contrast to portfolio loans, which are held for investment by originating institutions, conduit loans are originated for the sole purpose of sale and securitization in the secondary market. If securitization creates value, it should be evidenced in the relative pricing of conduit loans sold into CMBS pools and in a lower cost of capital to loan originators. We estimate a reduced-form model, in which the interest rate spread between commercial mortgages and comparable-maturity treasury securities varies with loan characteristics, capital market conditions, and conduit loan status. Estimation results indicate that securitization of conduit loans leads to an 11 basis points reduction in commercial mortgage interest rates. We assess robustness of results via hazard model tests for omitted variables and originator-specific effects. We further estimate a simultaneous equations model that accounts for the potential endogeneity of mortgage loan terms to the mortgage-treasury rate spread. Results of that analysis suggest a larger 20 basis points reduction in loan pricing among conduit loans sold into CMBS structures.     

Public Information and Coordination: Evidence from a Credit Registry Expansion

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.     

Default, Currency Crises, and Sovereign Credit Ratings

Sovereign credit ratings play an important part in determiningcountries' access to international capital markets and the termsof that access. In principle, there is no reason to expect thatsovereign credit ratings should systematically predict currencycrises. In practice, in emerging market economies there is astrong link between currency crises and default. Hence if creditratings are forward-looking and currency crises in emergingmarket economies are linked to defaults, it follows that downgradesin credit ratings should systematically precede currency crises.This article presents results suggesting that sovereign creditratings systematically fail to predict currency crises but doconsiderably better in predicting defaults. Downgrades in creditratings usually follow currency crises, possibly suggestingthat currency instability increases the risk of default.     

Credit Ratings and Stock Liquidity

We analyze contemporaneous and predictive relations betweencredit ratings and measures of equity market liquidity and findthat common measures of adverse selection, which reflect a portionof the uncertainty about future firm value, are larger whencredit ratings are poorer. We also show that future rating changescan be predicted using current levels of adverse selection.Collectively, our results validate widely used microstructuremeasures of adverse selection and offer new insights into thevalue of credit ratings and the specific nature of the informationthey contain.     

Credit Ratings and Capital Structure

This paper examines to what extent credit ratings directly affect capital structure decisions. The paper outlines discrete costs (benefits) associated with firm credit rating level differences and tests whether concerns for these costs (benefits) directly affect debt and equity financing decisions. Firms near a credit rating upgrade or downgrade issue less debt relative to equity than firms not near a change in rating. This behavior is consistent with discrete costs (benefits) of rating changes but is not explained by traditional capital structure theories. The results persist within previous empirical tests of the pecking order and tradeoff capital structure theories.     

Information, Credit Risk, Lender Specialization and Loan Pricing: Evidence from the DIP Financing Market

We provide an empirical support for theories of lender specialization using the recently developed market for Debtor-in-Possession (DIP) financing. The legal environment in which DIP financing operates represents a natural laboratory for testing determinants of lending specialization (e.g. lender choice). We find that the choice of lender is not driven by credit risk, but by information considerations and that this lending specialization has loan pricing effects. In short, banks (non-bank lenders) lend to more (less) transparent firms and at lower (higher) loan spreads. Our results are consistent with the interpretation that banks provide important and useful services.

Multiple Credit Ratings, Cost of Debt and Self-Selection

Abstract:  In a world where firms pay for credit ratings and (because of regulatory requirements) where some investors must pay attention to the ratings of some specified set of raters, it may well be in the interests of a firm to seek a third 'optional' rating, beyond the standard 'mandatory' two ratings from Moody's and Standard and Poor's. The firm may get a better rating from the third major rater Fitch, which could save substantially on future debt issuance costs. In this paper I specify and estimate a structural self-selection model of the demand for optional credit ratings derived from their expected reduction effect on borrowing cost compared with the optional ratings' cost. Attention is focused on specifying the role of expected cost of debt savings in the derived demand for optional ratings; these are found to be empirically important determinants of the decision to request Fitch ratings.     

Unsolicited Versus Solicited: Credit Ratings and Bond Yields

This paper is the first attempt to analyze Standard & Poor’s unsolicited and solicited ratings by using bond-yield data in Japan. Our findings show that there are differences in firm characteristics between firms seeking solicited ratings and those that receive unsolicited ratings. Firms with solicited ratings have less information asymmetry and are more likely to be owned by foreign investors, generate more revenue from exports, be cross-listed in the US, and have higher firm quality. But, firms with unsolicited ratings pay higher costs for debt, and their bond prices react more strongly to credit-rating changes. Yield spreads for new bonds with unsolicited ratings are higher than those with solicited ratings, because unsolicited ratings have higher information asymmetry, and investors therefore demand higher yields. We find that bond-price reactions to the announcements of unsolicited rating downgrades (upgrades) are negative (positive) and significant, while bond prices do not react significantly to solicited rating downgrades or upgrades.     

债券评级分析师任期、债项评级和信用利差

基于2008-2019年长期信用债数据,本文实证研究发现:评级分析师任期越长,信用评级越低;较长的分析师任期能够影响评级准确性,降低"未能预测违约"的第Ⅰ类错误,增加"错误违约预警"的第Ⅱ类错误;相比于短分析师任期,长分析师任期能够增强信用评级对信用利差的降低作用.本文还发现,相比于未被投资者付费评级机构评级的债券,投...     

Determinants of Credit Constraints: Evidence from Sindh,Pakistan

This article investigates the determinants of credit constraints: evidence from Sindh, Pakistan. Cross-sectional farm-level data is collected during November and December 2016. A sample of 180 farm households is selected for interviews by using a multistage, random sampling technique. This study employed a probit regression model, frequency counts, and percentages to analyze the data. Access to formal agricultural credit is relatively low in Sindh province of Pakistan, the findings of the study show that the major constraints comprise distance to the formal credit sources, lending procedure, time lag, and interest rate whereas land ownership has a negative association and reduces the constraints to access formal credit. The findings of this study also show that for efficient allocation of resources, institutional sources of credit preferred to disburse agricultural credits toward educated and young age farmers as they are more inclined to adopt new farm technology for better farm production.     

Analyst Reputation,Communication, and Information Acquisition

Earlier studies have shown that reputational concerns tend to reduce agents' opportunistic behavior. However, a recent study by Morris argued that analysts' (experts') reputational concerns may discourage truthful communication when they try to avoid being perceived as being misaligned with investors. In this paper, I examine the effect of reputational concerns on communication in a setting where analysts can choose their precision endogenously. Because both misaligned and aligned analysts want investors to trust their reports in the future, both will aim to build a reputation for being aligned. In equilibrium, aligned analysts will acquire more information than misaligned analysts. As a result, investors may favorably update their beliefs about the analysts' type when the report is proven to be accurate. Therefore, both types of analysts will have reputational incentives to communicate truthfully. The paper also derives conditions under which the analysts' reputational concerns have a nonmonotonic impact on aligned analysts' equilibrium precision choices and investors' welfare.     

Underwriter Reputation,Issuer Ownership,and Pre‐IPO Earnings Management: Evidence from China

This paper investigates the correlation between pre‐initial public offering (pre‐IPO) earnings management and underwriter reputation for issuers with different ownership structures in China. We document a significantly inverse relationship between underwriter reputation and pre‐IPO earnings management for non‐state‐owned enterprises (NSOE) issuers only, while no significant association is found for state‐owned enterprises (SOE) issuers. We also find that for the NSOE new issue market, underwriter reputation is positively correlated with issuer post‐IPO performance indicating that prestigious underwriters can incrementally improve issuer post‐IPO performance.