The dominant role of credit ratings, along with the failure of important FIs, exacerbated the 2008 crisis and caused further damage to European economies, which highlighted the need for effective regulation to prevent a reoccurrence. This thesis investigates the effect of EU and US recent regulatory reforms of the rating industry on the quality of credit ratings of financial institutions (FIs), as well as the impact of the new EU financial regulatory initiatives on the performance of FIs. The first empirical Chapter focuses on the EU reforms of credit rating agencies (CRAs) and provides evidence supporting the presence of a conservative rating bias in the post regulatory period, as increased scrutiny, fines and liability increase the cost of over rating. CRAs exhibit an unwarranted decrease in EU FI ratings, evidenced by an increase in false warning and a fall in the informativeness of FI rating downgrades in the post regulatory period. A subsequent rise in stock market responses to rating upgrades is consistent with CRAs expending greater effort to ensure they are justified. The second empirical Chapter focuses on the US reforms of CRAs and reports no significant impact on FI ratings, rather each CRA has responded differently to the passage of the US Dodd-Frank Act (DFA). There is, however, a significant reduction in stock market reactions to FI credit rating signals, consistent with diminishing reliance on credit ratings by market participants in the US. The third empirical Chapter builds and estimates a dynamic model of FI behaviour using discrete choice dynamic programming (DCDP). The model is used to simulate and examine the impact of regulations, including EU reforms of CRAs, capital adequacy regulation (Basel III), and the bail-in regime, on FIs' behaviour in the real economy. The results show that the shift to increasingly conservative rating behaviour triggered by the CRA reforms has caused FIs to respond by manipulating their capital ratios and to reduce lending activities. The results also show that more stringent capital requirements stimulate FIs to hold more capital, reduce lending and reveal a positive influence in reducing bank insolvency rates, particularly during the crisis period. The introduction of a bail-in regime reveals similar results, but crucially stimulates the adoption of a stable equilibrium (unlike Basel III). This thesis highlights drawbacks with the current regulatory reforms of the EU and US FI rating industries and suggests potential solutions. The thesis also informs the policy debate surrounding the best way to regulate both CRAs and FIs and ensure that there is not a reoccurrence of the problems present in the 2008 financial crisis.

Charakteristika ratingu. Dělení a druhy ratingu (rating emise × rating emitenta; dlouhodobý rating × krátkodobý rating; mezinárodní rating × lokální rating). Obecné požadavky kladené na rating. Proces tvorby ratingu. Vyžádaný rating. Nevyžádaný rating. Ratingový proces na bázi volně přístupných informací. Uplatňované ratingové systémy. Ratingová kriteria. Využití a interpretace ratingové známky. Funkce ratingu. Rating v souvislosti s BASEL II. Rating v souvislosti s hospodářskými krizemi.

<p>This study aims to investigate the relationship between systematic risk and credit ratings. The systematic risk, frequently measured by beta, is an important consideration for both investors and corporations. Therefore it is interesting to examine if indications about the systematic risk could be gained by looking at credit ratings, especially on the Nordic market, where credit ratings are seemingly growing in importance. Consequently, the following research hypothesis is posed;<em> We intend to establish a relationship between market risk (Beta) and credit ratings for firms in the Nordic countries.</em></p><p><em> </em></p><p>In order to confirm or deny the research hypothesis, theories from peer reviewed databases were collected. These were divided into three sections; background theories, hypotheses about credit ratings and a literature review. The background theories consisted of two classical financial theories, the Capital Asset Pricing Model and the Efficient Market Hypothesis, which are the foundation upon which the research field have progressed. The hypotheses is specifically designed to explain the relationship between credit ratings and either systematic risk or stock price. The literature review contains information about studies which did not contribute to theory building, but produced results interesting in the research area.</p><p> </p><p>The actual sample in the thesis consisted of the 58 credit rated companies on the Nordic stock market. These companies were rated by Moody’s and/or Standard & Poor’s, the two largest credit rating agencies in the world. As a measure of the systematic risk, betas for each of the companies were calculated. To investigate the relationship between these variables a regression analysis was performed, as well as one sample T-test using the software SPSS.</p><p> </p><p>The result revealed a moderate relationship between beta and credit risk, a relationship which was not statistically significant on the five percent level. Our results suggest that credit ratings contain some information about companies’ systematic risk, a finding that might be useful for market participants.</p><p> </p>

This study aims to investigate the relationship between systematic risk and credit ratings. The systematic risk, frequently measured by beta, is an important consideration for both investors and corporations. Therefore it is interesting to examine if indications about the systematic risk could be gained by looking at credit ratings, especially on the Nordic market, where credit ratings are seemingly growing in importance. Consequently, the following research hypothesis is posed; We intend to establish a relationship between market risk (Beta) and credit ratings for firms in the Nordic countries. In order to confirm or deny the research hypothesis, theories from peer reviewed databases were collected. These were divided into three sections; background theories, hypotheses about credit ratings and a literature review. The background theories consisted of two classical financial theories, the Capital Asset Pricing Model and the Efficient Market Hypothesis, which are the foundation upon which the research field have progressed. The hypotheses is specifically designed to explain the relationship between credit ratings and either systematic risk or stock price. The literature review contains information about studies which did not contribute to theory building, but produced results interesting in the research area.   The actual sample in the thesis consisted of the 58 credit rated companies on the Nordic stock market. These companies were rated by Moody’s and/or Standard &amp; Poor’s, the two largest credit rating agencies in the world. As a measure of the systematic risk, betas for each of the companies were calculated. To investigate the relationship between these variables a regression analysis was performed, as well as one sample T-test using the software SPSS.   The result revealed a moderate relationship between beta and credit risk, a relationship which was not statistically significant on the five percent level. Our results suggest that credit ratings contain some information about companies’ systematic risk, a finding that might be useful for market participants.

The concept of asymmetric information is probably best described by medieval idiom to buy a pig in a poke or to buy a cat in a sack, and is a long standing issue in a market economy. A solution to this predicament, is thought to be an objective third party certifier who would provide true information for the market participants. Credit Rating Agencies (CRAs) by all definitions act as such certifiers within financial markets and have been on the public spotlight for the last years. In both cases, the US subprime mortgage crisis and the EU sovereign debt crisis, the agencies were charged for miss-information on quality of financial products, that led to financial losses for the investors or debtors. Theoretical deduction suggest that certain market reaction to CRA announcements may indicate  if markets perceive CRAs themselves as selling a cat in a sack to the investors. Event study approach is employed to investigate how do sovereign debt market react to CRA announcements. The results suggest that sovereign debt market reaction is more pronounced if three major CRAs issue clustered announcements, and more actively react to following announcements as opposed to the leading ones.

The purpose of this thesis is to identify key factors underlying exchange rate developments during the European sovereign debt crisis by examining the impact of credit rating news, published by the three leading credit rating agencies, on conditional returns and volatility of EUR/USD (direct quotation) exchange rate. Empirical results highlight the importance of interest rate differential and volatility index of options exchange in explaining EUR/USD exchange rate volatilities. Downgrade announcements by Standard &amp; Poor’s as well as watch revisions by Fitch Ratings had a detrimental impact on the value of Euro, leading to a subsequent Euro depreciation over the period under consideration (January 2009 – April 2012).

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Credit rating agencies are controversial yet influential financial gatekeepers. Many have attributed the recent failures of credit rating agencies to conflicts of interest, such as the agencies’ issuer-pays business model and the agencies’ provision of ancillary services. This report identifies these conflicts; examines recently-finalized Security and Exchange Commission (SEC) regulations proscribing these conflicts; and suggests other possible regulatory measures. The strategies available to regulators are diverse and differ widely in their political and administrative feasibility. These strategies include outright prohibition of conflicts; removing regulatory references to credit ratings; enhancing agency liability; organizational firewalls; performance disclosures; demonstrating due diligence and its results; increasing competition; staleness reforms; internal governance; administrative registration; and requiring alternative business models. While the report primarily focuses on how the most recent financial crisis—and the related market for asset-backed securities—highlighted conflicts of interest at credit rating agencies, this report also examines how credit ratings—and their limitations—affect sovereign debt markets. / text

Our current understanding of credit rating agencies’ influence on national sovereignty relies on a dichotomised and highly antagonistic view of the relationship between states and the global economy. This perspective is locked into the discursive confines of the structuralist-sceptics debate within the field of international political economy. CRAs are said to either erode state sovereignty or represent a manifestation of it. By abandoning the state-market, public-private and national-global dichotomies embedded within this debate, and the zero-sum mentality they are predicated upon, this thesis offers an alternative – “transformationalist” – perspective to view the power of CRAs and their influence on national sovereignty. Defying traditional categorization, CRAs’ power is the result of a state-market, public-private confluence of interest and therefore has no determinative influence on national sovereignty. In the course of this analysis, a second assumption embedded within the study of CRAs’ influence is criticised: the fixation on the “big three” rating agencies (Moody’s, S&P and Fitch) and the neglect of the significance of the credit rating itself. Because the rating determination process is opaque, and the credit rating itself is a highly simplified expression of an intricately complex financial, economic and political reality, the causes of a sovereign rating change are often “up for debate”. Governments, within certain degrees of interpretation, are able to embed their own domestic political interests into the “causes” of a rating change, thereby co-opting and co-constructing the power and expertise of CRAs. This can, when successful, enhance governments’ internal sovereignty over domestic social forces and their external sovereignty as they “filter” the influence of a non-state actor. New Zealand’s interaction with the CRAs throughout 2008 to 2012 illustrates how this dynamic occurs and its limitations. The thesis seeks to highlight the diversity and heterogeneity involved in the processes of globalization in general, and CRAs’ influence in particular, and in doing so open up political space to consider possible forms of resistance.

I examine the effects of contemporaneous credit rating and watchlist announcements on the over-the-counter U.S. corporate bond market. I find significant negative daily abnormal returns (-2.91%) over a ten-day window associated with a downgrade announcement with negative watch. The effect is particularly strong over the two-day post-event window (-1.90%), while there is some weak evidence of market timing during the four days preceding a downgrade (-0.58%). Abnormal returns following upgrades with positive watch are weaker both in terms of statistical significance and magnitude. I also observe higher abnormal bond returns following downgrades with negative watch around rating-sensitive boundaries. These results suggest that bond abnormal returns could also be driven by regulation constraints, besides the information content of the ratings. Finally, a multivariate cross-sectional analysis on abnormal returns over the two-day window following downgrades shows that the negative watchlist state is a key determinant of bond market's response even when key control variables are included. / <p>Lic.-avh. Stockholm : Handelshögskolan, 2014</p>