Sovereign risk assessment and agency credit ratings

Sovereign ratings are gaining importance as more governments with greater default risk borrow in international bond markets. However, while the ratings have proved useful to governments seeking market access, the difficulty of assessing sovereign risk has led to agency disagreements and public controversy over specific rating assignments. Recognising this difficulty, the financial markets have shown some scepticism toward sovereign ratings when pricing issues.     

Estimating the term structures of corporate debt

This paper investigates the corporate bond market by estimating monthly interest rate term structures for investment grade credit classes using both S&P's and Moody's ratings. Term structures are modeled by a piecewise constant forward rate curve and estimated on noncallable coupon paying bonds issued by industrial firms. The iterative estimation algorithm minimizes the sum of squared errors between market prices and model prices while identifying and removing outliers from the sample. Although the forward rate model is successful at pricing corporate debt, additional factors are found to be significant at explaining the residual price error that remains after the forward rate model is fit to market prices. Six necessary no-arbitrage conditions are derived for the term structures of risky and risk-free debt. Occasionally, some of these no-arbitrage conditions are violated and a few violations are asymptotically statistically significant. Finally, trading strategies that capture mispricing in the corporate debt market and violations of no-arbitrage bounds are discussed.This paper was adapted from my dissertation, completed at Cornell University. An earlier version of this paper was titled The Term Structures of Corporate Debt. Thanks to participants at the Cornell University finance workshop, Warren Bailey, Peter Carr, Antoine Giannetti, and especially Robert Jarrow for their helpful comments.     

Are you really doing good things in your boss's eyes? Interactive effects of employee innovative work behavior and leader–member exchange on supervisory performance ratings

Organizations increasingly depend on employee efforts to innovate. However, the quality of relationships between leaders and employees may affect the recognition that employees receive for their innovative work behaviors. Drawing from a social cognition perspective, we tested a model in which leader–member exchange (LMX) moderates the impact of employee innovative work behavior on supervisory ratings of employee performance. Results from two multisource studies combining self, colleague, and supervisor ratings consistently showed that employees receive more favorable performance ratings by engaging in innovative work behavior when they have high‐quality LMX relationships. Moreover, we found that this interactive relationship was mediated by leader perceptions of innovative employee efforts, providing support for a moderated mediation model. Implications for the literatures on performance appraisal, LMX, and innovation are discussed.     

An Empirical Study of International Spillover of Sovereign Risk to Bank Credit Risk

The severity and complexity of the recent financial crisis has motivated the need for understanding the relationships between sovereign ratings and bank credit ratings. This is the first study to examine the impact of the “international” spillover of sovereign risk to bank credit risk through both a ratings channel and an asset holdings channel. In the first case, the downgrade of sovereign ratings in GIIPS (Greece, Italy, Ireland, Portugal, and Spain) countries leads to rating downgrades of banks in the peripheral countries. The second channel indicates that larger asset holdings of GIIPS debt increases the credit risk of cross‐border banks, and hence, the probabilities of downgrade.     

Recognition versus disclosure of finance leases: Evidence from Japan

This study examines whether credit market participants—bond investors and credit rating agencies—treat recognized and disclosed finance leases differently when assessing firms’ credit risk in Japan. I use firms’ credit risk, measured by bond spreads and credit ratings, to investigate the relations between recognized versus disclosed finance lease obligations and firms’ credit risk following the adoption of Statement No. 13, Accounting Standard for Lease Transactions. For a sample of firms issuing new bonds, I find that, unlike recognized finance leases, disclosed finance leases are not associated with bond spreads. Moreover, the associations between recognized versus disclosed finance leases and bond spreads are substantially different. Conversely, recognized and disclosed finance leases are associated with credit ratings and are processed similarly when credit ratings are determined. Taken together, my results suggest that the sophistication of capital market participants influences their credit risk assessments of recognized versus disclosed finance leases.     

What Drives the Consequences of Intentional Misstatements? Evidence from Rating Analysts’ Reactions

This paper aims to identify the mechanisms through which intentional misstatements adversely affect firms by analyzing rating analysts’ reaction to misstatements. In order to identify the mechanisms through which the misstatement affects firms’ credit ratings, we analyze the content of rating reports. Rating analysts are concerned about seven different mechanisms. They are most concerned about misstatement‐related violations of debt covenants that increase a firm's liquidity risk. We find that, subsequent to an intentional misstatement becoming publicly known, credit ratings of misreporting firms are adversely affected for up to seven years. The adverse impact of an intentional misstatement on a firm's credit rating is most pronounced in cases in which rating analysts mention concerns about misstatement‐related violations of covenants. Our results suggest that these covenant violations are the most severe mechanism through which misstatements adversely affect firms’ creditworthiness.     

Insider employee stock option trading and stock prices

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991–2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors’ reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, ‘through the cycle’, evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.     

Does it really pay to do better? Exploring the financial effects of changes in CSR ratings

Previous literature on the link between corporate social responsibility (CSR) and financial performance has focused mainly on the financial implications of a firm’s level of CSR without considering the potential effects on financial performance of variations in CSR rating. We try to fill this gap by studying whether variations in a firm’s CSR rating affect systematic risk, firm value, and portfolio performance. First, our results show that an increase in firms’ CSR efforts, as reflected by an increase in their CSR ratings, significantly reduces systematic risk. Second, a positive variation in CSR ratings significantly improves firm value. Finally, from a portfolio perspective, a strategy that consists of buying stocks that have experienced a CSR ratings increase and selling stocks that have experienced a CSR ratings decrease (or remain stable) leads to lower financial performance. Taken together, our findings provide new evidence and financial implications for firms and portfolio managers.     

商船避碰方法的探讨及影响

文章分析了商船与捕鱼船舶的避碰情况,以及减少碰撞事故应采取的措施,从而减少事故降低经济损失。     

多元文化共谋下的当代商贾历史叙事

当代商贾历史小说在多元期待视野下演绎儒商故事、财富神话和国族想象,呈现出多重叙事动机和多重文化内质。这是新兴的商业经济力量表达自身文化和意识形态诉求的结果,也折射出当代商业意识形态与社会主流意识形态、大众意识形态之间博弈且调和共生的局面。