Understanding credit ratings quality: Evidence from UK debt market participants

This study seeks to identify: (i) the demand for corporate bond ratings provided by credit ratings agencies (CRAs); (ii) how issuers select CRAs; and (iii) to better understand ratings quality, a term widely used by commentators, politicians and regulators, but under-explored in the academic literature. Interviews identify the principal source of demand for rating information is to reduce agency conflicts between issuers and investors. Issuers typically engage between one and three credit ratings agencies to rate their debt, implying a heterogeneous demand for ratings services, and different levels of ratings quality. However, ratings quality extends beyond competence and independence to include factors relating to professional judgment, communication, transparency, and the quality and continuity of analytic staff. Findings were discussed in the light of the ongoing international policy debate concerning CRAs.     

Credit ratings quality: The perceptions of market participants and other interested parties

The global credit crunch of 2008 and related sub-prime mortgage crisis of 2007 have made credit ratings agencies (CRAs) the focus of international attention. In particular, the quality of ratings information and the responsibilities CRAs owe to financial markets have come under intense scrutiny. Specifically, commentators, politicians, and regulators have expressed concern at the involvement CRAs might have had in creating global financial instability. However, the term ratings quality remains largely absent from the academic literature.This paper constructs a measurement instrument to capture ratings quality provided by CRAs, and assesses differences in perceptions of ratings quality amongst four stakeholder groups in public debt markets. Two macro-constructs of ratings quality are identified, labelled Technical Qualities and Relationship Qualities. The two macro-constructs are measured by ten micro-attributes, labelled: Cooperation; Independence; Internal Processes; Issuer Orientation; Methodology; Reputation; Service Quality; Shared Values and Norms; Transparency; and Trust. Each micro-attribute is operationalised into individual items, and then empirically tested using data obtained in the UK from 121 issuers, 75 non-debt issuing financial managers, 90 investors, and 120 other interested parties.The data suggest that ratings quality involves, in order of importance: the CRA's reputation; those values and norms of the CRA shared by users; the methodologies employed by the CRA; the independence of the CRA; and internal processes within the CRA. Multivariate analysis of variance finds no statistically significant variation between the groups for Technical Qualities factors. However, issuers rate Relationship Qualities and its micro-attributes of Trust, Issuer Orientation, and Service Quality higher than other market participants; a finding that reflects the dyadic relationship between the issuer's treasurer and lead analyst of the CRA. The paper concludes with a number of policy-relevant issues.     

Corporate Fraud and Corporate Bond Costs: Evidence from China

This study investigates the relationship between corporate fraud and four typical components of costs associated with corporate bonds. Based on data from a booming corporate bond market in China, we confirm that fraudulent issuers have higher corporate bond costs. Specifically, they are more likely to push upward price revisions, pay higher issue fees and coupon spreads, and encounter larger underpricing after issuance. Moreover, we demonstrate that severe corporate fraud is also significantly related to the costs of corporate bonds. Furthermore, we find that investors pay more attention to fraud in accounting information and disclosure. These results remain robust to a strand of endogeneity and through the robustness tests. In additional research, we find that bonds issued by fraudulent firms tend to receive lower ratings and show inferior performance after issuance. We also demonstrate that the effects of corporate fraud on bond costs erode as time passes, although the mitigation speed is slow. Finally, we find that hiring reputable financial intermediaries can partially mitigate the negative effects of corporate fraud.     

Effect of credit rating changes on Australian stock returns

We study the impact credit rating revisions have on stock returns of Australian firms rated by Standard & Poor's and Moody's. Our evidence is consistent with that documented in the USA showing that only downgrades contain price‐relevant information. The reaction is most significant when the downgrade: (i) is unanticipated; (ii) is for an unregulated firm; and (iii) reduces the firm's rating by more than one category.     

Credit ratings and the cross-section of stock returns

Low credit risk firms realize higher returns than high credit risk firms. This is puzzling because investors seem to pay a premium for bearing credit risk. The credit risk effect manifests itself due to the poor performance of low-rated stocks (which account for 4.2% of total market capitalization) during periods of financial distress. Around rating downgrades, low-rated firms experience considerable negative returns amid strong institutional selling, whereas returns do not differ across credit risk groups in stable or improving credit conditions. The evidence for the credit risk effect points towards mispricing generated by retail investors and sustained by illiquidity and short sell constraints.     

政府推进社会信用体系建设的对策取向

市场经济离不开健全的社会信用,针对我国信用供给和需求在总量和结构上存在的失衡矛盾,迫切需要具有管理者和参与者双重身份的政府在构建社会信用体系中发挥助推作用,通过提高信用产品质量,增加有效信用供给;刺激引导信用消费,扩大信用需求;推进信用环境建设,加快信用产品市场化运行,建立和完善适应市场经济发展的社会信用制度。     

关于我国社会信用制度建设目标模式的思考

现代市场经济的核心制度之一就是社会信用制度.社会信用制度由于其历史的沉积性,它的形成和发展是一个较为漫长和渐进的过程.鉴于历史、政治、经济发展等多方面的原因,与西方发达国家相比,我国市场经济发展起步晚,信用基础薄弱,社会信用制度严重缺失.随着我国加入WTO以及经济全球化速度的加快,我国在建立信用制度体系时必须考虑到与国际接轨.为此,本文在借鉴国外信用制度模式的基础上,结合我国实际,探索我国社会信用制度建设的目标模式.     

Market Segmentation Effects in Corporate Credit Rating Changes: The Case of Emerging Markets

We examine stock market reactions to corporate credit rating changes in 26 emerging market countries included in the Morgan Stanley Capital International (MSCI) Emerging Market Index. We hypothesize and test the notion that emerging market firms in the American Depository Receipts (ADRs) markets are more likely to purchase ratings from the Big Two (Moody’s and S&P), and that they react more strongly to the announcements of corporate rating changes by Moody’s or S&P than to those of raters in local markets. We compare the effect of credit rating changes of the Big Two in two emerging stock markets: local markets (local currencies) and ADR markets (U.S. dollars). We find significant price reactions in the ADR markets, and insignificant reactions in local markets, and conclude that there is capital market segmentation in ADR markets for credit rating changes of emerging market firms. We find evidence that investors react more strongly in the ADR markets than local markets because they require higher costs of capital for firms cross-listed both in the ADR markets and local markets due to greater expected bankruptcy costs and foreign exchange risks of those firms. We also report that stock markets react significantly, not only to rating downgrades, but also to upgrades in the ADR markets.

Credit Risk Versus Capital Requirements under Basel II: Are SME Loans and Retail Credit Really Different?

Under Basel II, retail and SME credit (R&SME) receive special treatment because of a supposedly smaller exposure to systemic risk. Most research on this issue has been based on parameterized credit risk models. We present new evidence by applying Carey's (Carey, Mark. “Credit Risk in Private Debt Portfolios.” Journal of Finance 53, no. 4 (1998), 1363–1387.) nonparametric Monte-Carlo resampling method to two banks' complete loan portfolios. By exploiting that a sub-sample of all borrowers has been assigned an internal rating by both banks, we can compare the credit loss distributions for the three credit types, and compute both economic and regulatory capital under Basel II. We also test if our conclusions are sensitive to the definitions of R&SME credit. Our findings show that R&SME portfolios are usually riskier than corporate credit. Special treatment under Basel II is thus not justified. JEL classification: C14, C15, G21, G28, G33.     

Corporate Governance Structure and Performance of Malaysian Listed Companies

Abstract:  This study investigates the relationship between the corporate governance structure and performance of 347 companies listed on the Kuala Lumpur Stock Exchange (KLSE) between 1996 and 2000. We found board size and top five substantial shareholdings to be significantly associated with both market and accounting performance measures. In addition, we found a significant relationship between multiple directorships and market performance while role duality and managerial shareholdings are significantly associated with accounting performance. The result is robust with respect to controls for gearing, company size, industry membership and growth opportunities.     

Acquisition pricing in India during 1995–2011: Have Indian acquirers really beaten the odds?

We examine the announcement returns of acquisitions made by Indian firms during the period 1995–2011. Our results confirm that the announcement returns to Indian acquirers are on average significantly positive. However, we are first to document that the announcement returns to Indian acquirers decline over time and become, on average, negative towards the end of our sample period. We analyze several hypotheses for such decline and find that the decline, while robust to a variety of explanations, is related to the intensity of the market for corporate control in India. Finally, the post-acquisition long-run returns for acquirers are, on average, consistently positive, do not change over time, and are unrelated to the initial market reaction to the acquisition announcement.     

中国创业板上市公司治理与绩效的实证研究

公司治理的直接目标是提升公司绩效,公司绩效是衡量公司治理有效性的重要指标。本文以截至2010年9月30日在中国创业板上市的123家公司为样本,构建公司绩效与公司治理各变量的多元线性回归模型,对中国创业板上市公司的治理与绩效进行实证分析,并在实证研究的基础上,对如何完善我国创业板上市公司治理,提升公司绩效提出了政策建议。     

公司绩效、公司治理与管理者报酬实证研究

本文以中国深、沪两市在2004年上市公司样本作为公司绩效、公司治理与管理者报酬研究对象,从公司绩效、股权结构的安排以及董事会治理三个方面,通过构建最小二乘模型进行多元线性回归,来研究公司内部治理机制对公司管理层报酬的影响。研究结果表明:公司绩效、国有股比例、董事会规模、两职兼任均对管理者报酬产生显著的影响。     

信用风险溢价还是市场流动性溢价:基于中国信用债定价的实证研究

我国信用债定价与成熟市场国家信用债定价存在显著差异,并未随着经济周期运行中违约风险的变化而产生明显调整。研究发现,我国市场主体普遍存在对信用债刚性兑付的预期,且倾向于采用信用债进行套利交易,这种行为导致信用债信用利差更多体现的是市场流动性溢价,而非信用风险溢价,因而反映市场流动性状况的货币市场利率水平、波动性对信用债定价具有较为重要的影响,而模糊了对手方信用的中央对手方的质押回购制度安排进一步强化了这种影响。