The thesis studies the factors which underpin the allocation of credit ratings by the two major credit rating agencies (CRAs) namely Moody’s and S&P. CRAs make regular headlines, and their rating’s judgements are closely followed and debated by the financial community. Indeed, criticism of these agencies emerged, both in this community and the popular press, following the 2007-2008 financial crisis. This thesis examines several aspects of the allocation of credit ratings by the major agencies, particularly in relation to (i) their revealed “loss function” preference structure, (ii) the determinants underpinning the allocation of credit ratings and (iii) the reasons determining the circumstances when the two agencies appear to differ in their opinions, and we witness a split credit rating allocation. The first essay empirically estimates the loss function preferences of two agencies by analyzing instances of split credit ratings assigned to corporate issuers. Our dataset utilises a time series of nineteen years (1991-2009) of historical credit ratings data from corporate issuers. The methodology consists of estimating rating judgment differences by deducting the rating implied probability of default from the estimated market implied probability of default. Then, utilising judgment differences, we adapt the GMM estimation following Elliott et al. (2005), to extract the loss function preferences of the two agencies. The estimated preferences show a higher degree of asymmetry in the case of Moody’s, and we find strong evidence of conservatism (relative to the market) in industry sectors other than financials and utilities. S&P exhibits loss function asymmetry in both the utility and financial sectors, whereas in other sectors we find strong evidence of symmetric preferences relative to those of the market. The second essay compares the impact of financial, governance and other variables (in an attempt to capture various subjective elements) in determining issuer credit ratings between the two major CRAs. Utilising a sample of 5192 firm-year observations from S&P400, S&P500 and S&P600 index constituent issuer firms, we employ an ordered probit model on a panel dataset spanning 1995 through 2009. The empirical results suggest that the agencies indeed differ on the level of importance they attach to each variable. We conclude that financial information remains the most significant factor in the attribution of credit ratings for both the agencies. We find no significant improvement in the predictive power of credit rating when we incorporate governance related variables. Our other factors show strong evidence of continuing stringent standards, reputational concerns, and differences in standards during economic crises by the two rating agencies. The third essay investigates the factors determining the allocation of different (split) credit ratings to the same firm by the two agencies. We use financial, governance and other factors in an attempt to capture various subjective elements to explain split credit ratings. The study uses a two-stage bivariate probit estimation method. We use a sample of 5238 firm-year observations from S&P 500, S&P 400, and S&P 600 index constituent firms. Our results indicate that a firm having greater size, favourable coverage and higher profitability are less likely to have a split. However, smaller firms with unfavourable coverage and lower profitability appear to be rated lower by Moody’s in comparison to S&P. Our findings suggest that the stage of the business cycle plays no significant role in deciding splits, but rating shopping and the introduction of regulation FD increase the likelihood of splits arising.

L’objectif de la thèse est d’apporter de nouveaux éléments d’analyse sur les limites de l’emprunt. Elle comprend quatre chapitres qui fournissent des éléments théoriques, méthodologiques et empiriques. Le premier chapitre contribue à la théorie des limites de l’emprunt par une étude des prêteurs en dernier ressort (PDR). Le second chapitre constitue un apport méthodologique en introduisant une nouvelle approche pour tester et mesurer empiriquement les limites de l’emprunt. Il contribue également à la compréhension empirique des limites de l’emprunt en appliquant une nouvelle approche pour tester le comportement cyclique et les effets de la réglementation sur les limites de l’emprunt. Le troisième chapitre est un apport sur les effets des limites de l’emprunt sur la consommation. Le quatrième chapitre, enfin, présente de nouveaux éléments empiriques sur l’impact de la propriété bancaire sur les limites de l’emprunt durant une crise financière. / The aim of this PhD dissertation is to provide new insights about the limits of borrowing. It includes four essays which provide theoretical, methodological and empirical results. The first chapter contributes to the theory of limits of borrowing by a study of lender of last resort (LOLR) in an original model. The second chapter contributes to methodology by introducing a new approach to test and measure the limits of borrowing econometrically. It also contributes to the empirical understanding of the limits of borrowing by applying the new approach to test the cyclical behavior and the effects of regulation on the limits of borrowing. The third chapter contributes to our empirical understanding of the effect of limits of borrowing on consumption. The fourth chapter yields new insight about the effect of bank ownership on the limits of borrowing during a financial crisis.

Syndicated loans are a common debt financing format for large corporations in general. For those situated in Germany—with its bank-based financial system—such loans play a vital role. Given the multibillion volumes raised annually, the pricing of syndicated loans is economically significant, with its levels, structure, and determination having attracted the interest of researchers around the world. A critical review of the existing worldwide literature of syndicated loan pricing revealed notable gaps, including an almost complete absence of studies on the German corporate market. The overall research aim was to address this gap by exploring and analysing the “hidden drivers” of banks’ pricing of syndicated loans to German corporate borrowers, thereby developing an enriched understanding of the elements and determinants of pricing and its underlying processes and decisions. Adopting a pragmatist research paradigm, I chose a sequential mixed-methods approach, with a limited quantitative analysis preceding an extensive qualitative study. The first stage of the research was designed to evaluate the availability of reliable quantitative pricing data in the public domain—this being the main data source for the clear majority of extant studies. I found the availability and quality of pricing data for the German corporate market to be extremely limited, particularly in comparison to that available relating to the U.S. market. There was clearly much that remained unexplained; hence, primary research was required to illuminate syndicated loan pricing and the decision processes that contribute to it. The main element of the qualitative study was a series of semi-structured, in-depth interviews with a sample of bank lending professionals and key informants. The purpose of these interviews was to explore the complex realities of syndicated lending through the eyes and experiences of the people involved and to interpret the socially constructed phenomena surrounding the pricing of German corporate syndicated loans. The study succeeded in revealing and substantiating important and to date hidden phenomena concerning numerous dimensions of syndicated lending in general and pricing in particular. An explanation was developed for the relative opacity of the German corporate syndicated loan market. The study enabled significant enhancements to the understanding of the concept of pricing and its complex and interwoven elements. More broadly, a new and richer perspective was developed of syndicated lending as a behavioural phenomenon, involving a complex interplay of relationships and strategies, and involving individuals and departments within banks, between banks as members of the syndicate, and between lenders and borrowers. The insights gained informed the development of a comprehensive model of the pricing elements of syndicated lending and their determinants. This research is the first to conduct and produce an in-depth study of the internal workings of syndicated corporate lending in the German market and a study that does not rely on secondary data that are at best incomplete. It has resulted in many rich and original insights and a conceptualisation of syndicated lending that differs radically from the classical understanding of lender-borrower relationships as founded on theories of asymmetric information. The research presented here, therefore, makes significant contributions to the literature, in helping to close notable gaps in the banking and financial intermediation literature.

Credit Rating Agencies (CRAs) play a key role in financial markets by helping to reduce informative asymmetry between lenders and investors, on one side, and issuers on the other side, with regard to the creditworthiness of banks or countries. This crucial role has expanded alongside financial globalisation and received an additional boost from Basel II which integrates the ratings of CRAs into the rules for setting weights for credit risk. Ratings adjustment tends to be sticky, lagging behind markets, and often overreact when they do change. This overreaction may have aggravated the recent financial crises, contributing to financial instability and cross-country contagion. Criticism has been especially directed towards the high degree of concentration of the ratings industry. Promotion of competition may require policy action at the international level to encourage the establishment of new agencies and to discover alternative rules or regulatory requirements in order to achieve promising results. The recent growth of Middle Eastern and North African countries (MENA) and their commercial banking system has increased the need of paying widespread attention to this region of the world. This thesis crucially identifies, and estimates, the robust determinants of credit ratings for MENA countries and their commercial banks, incorporating a set of bank level accounting and financial risk factors, as well as country-specific characteristics, including indicators for regulatory, supervision, legal and economic environments. The research contributes, firstly, to the theoretical literature on credit ratings industry by reviewing extant methodologies specifically as they apply to banks and sovereign countries. Secondly, it conducts a systematic, cross-country empirical investigation using panel data econometric methodology for the purpose of estimating MENA countries sovereign and bank credit rating models. Thirdly, it provides tangible and statistically significant evidence on the different factors that determines the estimation of credit ratings and influencing bank's risk. The extant literature reviewed serves as a basis to achieve and develop the research aim, objectives and hypotheses of the thesis. The research then constructs an appropriate panel dataset from different sources, containing bank-level and country-level information for a sample of 108 commercial banks covering 13 MENA countries over the period 2000 - 2012. The methodological framework for estimating credit rating models (linear regression, logit and probit) is also reviewed and the procedures for panel data estimation are implemented using the econometric package STATA (version 13). All relevant data are drawn from public sources including Reuters, Bankscope, IMF and the World Bank. Using the random effects ordered probit and logit methodologies to estimate both sovereign (country) and bank level credit ratings models for the MENA countries, the evidence shows that real GDP growth, capital requirements, restrictions on banking activities and control of corruption all contribute negatively to the sovereign ratings. Furthermore, internal management and organisational requirements is considered as an additional regulatory factor not studied in previous research. The statistically significant and inverse relationship of the latter is considered an important and interesting outcome of MENA countries’ sovereign ratings. On the other hand, GDP per capita, investment (as a percentage of GDP), political stability, government effectiveness and the rule of law all reveal significant and positive impact on the sovereign credit ratings. In general, this research finds that improved macroeconomic conditions are correlated with higher ratings, while greater reserve regulations are correlated with lower ratings. The study also does find the significance of governance and regulatory variables plays a key role into the final credit rating. With regard to the impact on banks’ ratings, the results show that higher return on average assets and equity, larger bank size, more restrictions on bank activities, as well as higher official disciplinary power and higher standards of internal management, will yield higher credit ratings. Apart from having direct and positive impact on banks credit ratings, these variables are important for examining the risk-sharing incentives in MENA countries’ banks. In contrast, the estimation results indicate that net interest margin, net loans to deposits, liquid assets to deposits, capital requirements, deposit insurance scheme, liquidity requirements, unemployment rate and government effectiveness have an inverse and negative impact on banks ratings. In general, this study also finds various financial, macroeconomic, and regulatory effects on banks’ credit ratings. To a much lesser extent than government ratings, various macroeconomic variables also helped predict banks’ ratings, including real GDP growth and the unemployment rate. The thesis concludes by arguing that the combined use of financial and non-financial factors for estimating credit ratings models supports the relevant hypotheses examined and adds value to all stakeholders in improving and obtaining a better quality of credit ratings. This study also demonstrates that a diversity of bank-level and country-level factors influence the MENA sovereign and bank ratings differently, implying that policy makers, regulators alongside rating agencies should distinguish the different environmental factors between nations before any judgment and issuance can be model of the ratings. To conclude, there is no study which exclusively investigates credit rating models for the MENA region exploiting the richness of the data and methodology employed, and the current research aims to fill this gap.

This study seeks to show that a higher usage of debt instruments by consumers with limited available funds leads to the usage of savings tools to finance debt costs, which subsequently results in lower levels of savings. This was espoused by the literature on PFM and also proven by the test results from the research hypotheses that were computed by means of a logistic regression. The test results showed that there is a statistically significant relationship between the usage of debt instruments and the usage of savings tools. An emphasis is placed on the importance of savings as an integral component of the PFM concept: it is namely seen to be indispensable to good financial planning to ensure current and future consumer financial security. Therefore, this study concludes by highlighting the importance of consumers’ financial- management skills in minimising debt costs to increase levels of savings by controlling higher consumption expenditure through debt. / Business Management / M. Com. (Business management)

In the aftermath of the recent financial crisis, the way credit risk is affected by and affects the macroeconomic environment has been the focus of academics, risk practitioners and central bankers alike. In this thesis I approach three distinct questions that aim to provide valuable insight into how corporate defaults, recoveries and credit ratings interact with the conditions in the wider economy. The first question focuses on how well the macroeconomic environment forecasts corporate bond defaults. I approach the question from a macroeconomic perspective and I make full use of the multitude of lengthy macroeconomic time series available. Following the recent literature on data-rich environment modelling, I summarise a large panel of 103 macroeconomic time series into a small set of 6 dynamic factors; the factors capture business cycle, yield curve, credit premia and equity market conditions. Prior studies on dynamic factors use identification schemes based on principal components or recursive short-run restrictions. The main contribution to the body of existing literature is that I provide a novel and more robust identification scheme for the 6 macro-financial stochastic factors, based on a set of over-identifying restrictions. This allows for a more straightforward interpretation of the extracted factors and a more meaningful decomposition of the corporate default dynamics. Furthermore, I use a novel Bayesian estimation scheme based on a Markov chain Monte Carlo algorithm that has not been used before in a credit risk context. I argue that the proposed algorithm provides an effcient and flexible alternative to the simulation based estimation approaches used in the existing literature. The sampling scheme is used to estimate a state-of-the-art dynamic econometric specification that is able to separate macro-economic fluctuations from unobserved default clustering. Finally, I provide evidence that the macroeconomic factors can lead to significant improvements in default probability forecasting performance. The forecasting performance gains become less pronounced the longer the default forecasting horizon. The second question explores the sensitivity of corporate bond defaults and recoveries on monetary policy and macro-financial shocks. To address the question, I follow a more structural approach to extract theory-based economic shocks and quantify the magnitude of the impact on the two main credit risk drivers. This is the first study that approaches the decomposition of the movements in credit risk metrics from a structural perspective. I introduce a VAR model with a novel semi-structural identification scheme to isolate the various shocks at the macro level. The dynamic econometric specification for defaults and recoveries is similar to the one used to address the first question. The specification is flexible enough to allow for the separation of the macroeconomic movements from the credit risk specific unobserved correlation and, therefore, isolate the different shock transmission mechanisms. I report that the corporate default likelihood is strongly affected by balance sheet and real economy shocks for the cyclical industry sectors, while the effects of monetary policy shocks typically take up to one year to materialise. In contrast, recovery rates tend to be more sensitive to asset price shocks, while real economy shocks mainly affect secured debt recovery values. The third question shifts the focus to credit ratings and addresses the Through-the- Cycle dynamics of the serial dependence in rating migrations. The existing literature treats the so-called rating momentum as constant through time. I show that the rating momentum is far from constant, it changes with the business cycle and its magnitude exhibits a non-linear dependence on time spent in a given rating grade. Furthermore, I provide robust evidence that the time-varying rating momentum substantially increases actual and Marked-to-Market losses in periods of stress. The impact on regulatory capital for financial institutions is less clear; nevertheless, capital requirements for high credit quality portfolios can be significantly underestimated during economic downturns.

Les quatre chapitres de cette thèse analysent la manière selon laquelle les différents aspects du droit de la faillite influencent les résultats économiques d’une procédure de faillite notamment le degré de recouvrement de la dette des créanciers. Le premier chapitre montre que les lois sur les faillites présentent des conditions différentes de vote de créanciers en fonction de leur origine légale telle que : l’origine anglaise, l’origine française, l’origine allemande et celle nordique. Le second chapitre soutient que l’utilisation nationale de la procédure de réorganisation est favorisée par des processus moins stricts d’acceptation. Le troisième chapitre montre que les systèmes Est-Européens de faillite offrent une protection plus forte des créances garanties que dans le cas de créances publiques. Une concentration plus élevée de la dette diminue les taux de recouvrement en cas de la procédure de liquidation. Les estimations confirment l'existence de deux effets d'interaction entre les classes de créanciers Est-Européens: l'effet d'entraînement et l'effet de rivalité. Le dernier chapitre propose un modèle théorique qui prédit que les débiteurs ont des fortes incitations à proposer aux créanciers de plans de réorganisation avec un partage sous-Optimal de coûts quelque soit l'orientation de l'environnement juridique de la faillite y compris une orientation pro-Créancier ou une orientation pro-Débiteur. / This thesis analyzes the influence of various aspects of bankruptcy law on the economic outcomes of bankruptcy proceedings, mainly the amounts of the debt recovered by claimants. First, we show that bankruptcy laws settle different voting conditions of creditors according to their legal origin, i.e. English origin, French origin, German origin, and Nordic origin. Second, the national use of reorganization procedures seems to be favoured by less strict approval processes. Third, we find that the Hungarian, the Polish, and the Romanian bankruptcy systems provide stronger protection of the private secured claims than the public ones. A higher concentration of the claims also decreases the total recovery rates produced by the liquidation procedure. Our estimations confirm the existence of two interaction effects between the claimants, i.e. the ripple effects and the rivalry effects. Fourth, we developed a theoretical model that predicts that debtors have strong incentives to submit reorganization plans with suboptimal cost sharing regardless of the orientation of the bankruptcy environment, i.e. creditor-Friendly or debtor-Friendly.

Acteurs majeurs du tissu économique, les petites et moyennes entreprises (PME) font l’objet d’une attention croissante de la part des économistes depuis plusieurs années. Pour financer leur développement, ces entreprises privilégient le recours à l’endettement bancaire. Or ce mode de financement est générateur d'un risque de crédit, principalement lié à la probabilité de défaillance de l’entreprise. La question de l’évaluation du risque de crédit des entreprises est généralement abordée de manière indifférenciée. Cependant il est possible que les PME internationalisées présentent des caractéristiques spécifiques relatives à leur ouverture sur les marchés internationaux. Nous procédons à une analyse des déterminants du risque de défaillance des PME d’une part, et d'autre part, des risques auxquels elles sont confrontées dans leur processus d’internationalisation. A travers des estimations économétriques sur données de panel, nous montrons notamment que l’augmentation de l’intensité des exportations des PME françaises réduit leur probabilité de défaillance. Une PME internationalisée présente alors un risque de crédit moins important qu'une PME purement domestique. Nous montrons ensuite que cette information doit être intégrée dans la modélisation du risque de crédit, réalisée sur la base de variables financières. Celle-ci est plus performante (dans le sens d'un meilleur pouvoir prédictif)lorsque l’on estime la probabilité de défaillance à l’aide de modèles distincts pour les PME internationalisées et les PME domestiques. Selon ces résultats, l'internationalisation est un facteur important qui devrait être considéré dans la recherche future sur le risque de crédit des PME. / Small and medium-sized enterprises (SMEs) dominate the French business environment making a significant contribution to the national economy. Unsurprisingly, an extensive set of empirical studies explores critical issues that affect SMEs including factors that can reduce the credit risk associated with bank debt. Despite that internationalisation has a number of key characteristics that can influence credit risk, the nexus between internationalisation and credit risks remains underexplored. This thesis aims to address this knowledge gap by examining this nexus for a panel of French SMEs. To do so, the thesis estimates the effect of export intensity of French SMEs on their default probability. Key findings illustrate that internationalisation plays a critical role in decreasing the credit risk. Motivated by these results, the thesis assesses the relationship between internationalisation and modelling credit risk through evaluating the effect of several financial variables on default probability of domestic and international SMEs, separately. Interestingly, the findings reveal that modelling the credit risk of SMEs could be improved by considering domestic and international SMEs separately. According to these findings, internationalisation is one of the most important factors that should be considered in future research in relation to SMEs.

Cette thèse a pour objet d’analyser la performance des établissements bancaires jordaniens durant la crise mondiale amorcée en 2007-2008. Sous ce thème, nous abordons les questions de la réglementation du système bancaire, de l’asymétrie d'information et du risque de crédit. Une attention particulière est portée à l’analyse de la réglementation issue des différents accords de Bâle, qui a servi de modèle à la régulation du système bancaire jordanien. En effet, non seulement la philosophie de la réglementation bancaire a évolué depuis le premier accord en 1988, mais de plus il existe des interactions entre les dispositifs réglementaires et les problèmes liés à l’information et à la gestion du risque de crédit. A la suite de l'analyse de ces trois facteurs, nous nous tournons vers leur prise en compte dans l'évaluation de la performance bancaire. Nous concentrons notre étude sur la Jordanie, pays dans lequel la structure du marché bancaire a profondément été bouleversée ces dernières années par l’ouverture du marché aux investisseurs internationaux, par l’évolution des normes prudentielles et par les conséquences économiques de la crise financière internationale. Une estimation quantitative du risque de crédit et de la performance est menée, en ayant recours à des méthodes statistiques et économétriques. Les résultats montrent que la dégradation de la performance des banques jordaniennes à partir de 2008 n’est pas due principalement à la réglementation stricte imposée par la banque centrale, mais plutôt à l’autorégulation, caractérisée par un excès de prudence des banques dans leur offre de crédits, particulièrement après avoir connu une période de forte concurrence. / The aim of this thesis is to analyze the performance of Jordanian banks during the recent global crisis that started in 2007-2008. Under this theme, we approach the banking system regulatory issues, the information asymmetry and the credit risk. Special attention is paid to the analysis of the regulations stemming from various Basel agreements, which served as a model for the regulation of the Jordanian banking system. Indeed, not only the philosophy for banking regulation has evolved since the first agreement in 1988, but more interactions have emerged between regulatory systems with information and credit risk management related problems. Following the analysis of these three factors, we will study their role in the evaluation of the banking sector performance. We focus our study on Jordan, a country in which the structure of the banking market has been deeply disturbed in recent years by opening the market to international investors, by changing the prudential standards and the economic consequences of the global financial crisis. Our approach is to conduct a quantitative assessment of credit risk and performance, through the use of statistical and econometric methods. The results show that the degradation in the performance of Jordanian banks starting from 2008 is not mainly the result of the strict regulations implemented by the Central Bank of Jordan, but rather an auto-regulation characterized by the banks excessively cautious attitude to their credit supply, especially after a period of intense competition.

This study seeks to show that a higher usage of debt instruments by consumers with limited available funds leads to the usage of savings tools to finance debt costs, which subsequently results in lower levels of savings. This was espoused by the literature on PFM and also proven by the test results from the research hypotheses that were computed by means of a logistic regression. The test results showed that there is a statistically significant relationship between the usage of debt instruments and the usage of savings tools. An emphasis is placed on the importance of savings as an integral component of the PFM concept: it is namely seen to be indispensable to good financial planning to ensure current and future consumer financial security. Therefore, this study concludes by highlighting the importance of consumers’ financial- management skills in minimising debt costs to increase levels of savings by controlling higher consumption expenditure through debt. / Business Management / M. Com. (Business management)