This thesis deals with the activity of rating agencies and the sovereign rating in-fluence on debt service of the Czech Republic. In the theoretical part there is described the rating concept and its importance for society. Next there is described the history of the most significant rating agencies, so-called "The Big Three". The second part of this thesis is dedicated mainly to the sovereign rating of the Czech Republic that is compared with the sovereign ratings of other countries of the EU. Finally, I analyze whether there is a connection with the determinativ of the level of dependence between sovereign rating and interest on new government bonds, GDP, and state debt.

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.

This write-up is submitted in partial fulfillment of the Master of Management Degree in Finance and Investment / Through the use of an EGARCH model and a fixed effects panel regression, the reaction of emerging market stock and bond volatility to sovereign credit ratings changes is examined. The daily data covers the period of 1990 to 2016 and emerging market crises, such as the 1994 Mexican peso crisis, 1997 Asian financial crises and the global 2008 financial crises. The estimations provide evidence of an asymmetric effect of rating changes on stock volatilities, whereby downgrades have a significant impact, while upgrades have no such effect. For bonds the effect is ambiguous with both upgrades and downgrades having an effect. Downgrades are found to increase both stock and bond market volatility. On aggregate, contagion effects amongst stocks are found for emerging markets, as well as for the continents of Asia and Europe. No such evidence is found for bonds. / MT2017

In this thesis I deal with role of rating agencies in the context of today's financial crisis. In particular, I focus on the segment evaluation of credit rating structured securities, the three largest credit rating agencies. The main part of this work include: financing credit rating agencies and regulation of credit rating agencies in the U.S. and the EU, securitization and the role of rating agencies and analysis of default studies of rating agencies. The last part is the comparison of default rates of structured finance segment by rating notches and comparison of volatility ratings of structured securities by rating notches selected the rating agencies. The time frame I set in the period from 2005 to 2012, which is evident during the financial crisis and its impact on changes in notches and default rates.

This thesis deals with the action and impact of the credit rating agencies in the capital markets during the financial crisis. The work is divided into two parts; the first part stresses the importance of a proper understanding of the rating, its characteristics, functions, users and the rating process. The emphasis is put on the market analysis of ratings and rating agencies in the U.S. and European market. The second part of this work is devoted to examining the issue of rating agencies during the crisis, which contributed to the spread of the financial crisis, criticism relevant issues and regulatory arrangements.

The thesis elaborates on the development of the rating at capital markets and its regulation in the context of the global financial crisis. The first part focuses on the definition of the rating, the kinds and types of grant, explanation of the symbols in the rating scale, the rating process and activities of credit ratings agencies. The second part compares the different development of credit rating industry in the United States of America and in the European Union. It also deals with the participation of credit rating agencies in the financial crisis. The last part is concerned with the Dodd -- Frank Act and Regulation 1060/2009 on credit rating agencies as two different measures granted after crises. The thesis analyzed also their impact on the credit rating industry.

The thesis focuses on the role of rating agencies in the financial crisis. The aim of the thesis is to judge a rate how much rating agencies contributed to give rise to last financial crisis, began by fall of Lehman Brothers in 2008. A main question is whether rating agencies acted inadvertently or on purpose and which all factors contributed most to result in financial crisis and as well how the rating agencies could influence and cope with these factors. The thesis deals with regulation of rating agencies and their appropriateness too. Rating and its aspects in theoretical way are described in the first part of the work. The real situation of rating industry prior to and in financial crisis is described in the second practical part of the thesis.

I re-examine “rating shopping” and “rating catering” in the market for AAA rated collateralized debt obligations (CDOs) by replicating the study of Griffin and Tang (2013) using post-crisis data. I find a sharp increase in the amount of CDOs that received a single rating, suggesting that CDO underwriters were more cautious about formally soliciting multiple ratings. However, I also find a decrease in AAA rating disagreements between S&P and Moody’s, implying that issuers shopped their CDOs through informal conversations with agencies. Finally, I find investors correctly accepted tighter credit spreads for dual-rated CDOs because dual-rated CDOs experienced fewer rating downgrades than single rated deals. These results differ from the pre-crisis findings of Griffin and Tang (2013) and are consistent with the existence of rating shopping and disappearance of rating catering during the post-crisis period.

published_or_final_version / Economics and Finance / Master / Master of Economics

This paper introduces a model framework for dynamic credit rating processes. Our framework aggregates ordinal rating information stemming from a variety of rating sources. The dynamic of the consensus rating captures systematic as well as idiosyncratic changes. In addition, our framework allows to validate the different rating sources by analyzing the mean/variance structure of the rating deviations. In an empirical study for the iTraxx Europe companies rated by the big three external rating agencies we use Bayesian techniques to estimate the consensus ratings for these companies. The advantages are illustrated by comparing our dynamic rating model to a naive benchmark model. (authors' abstract)