Thesis advisor: Philip E. Strahan / In the first essay of this dissertation I examine the bank credit supply and industry growth effects stemming from the introduction of bank account debit (BAD) taxes using a sample of Latin American countries between 1986 and 2005. I first show that the introduction of BAD taxes is followed by a reduction in the provision of bank credit to the private sector. I identify that a key channel through which these taxes affect credit is by creating a strong incentive to hold cash and reduce the use of bank deposits. I also provide evidence that their implementation ultimately affects economic growth, mainly by reducing the growth prospects of industries that are more susceptible to distortions in the supply of credit. In the second chapter I use a large sample of private firms in Colombia to investigate the impact of the introduction and changes of BAD taxes on the financing and investment decisions of firms. I first document that bank leverage decreases from an average of 23% in the years before the tax to 18% in the post-tax years. Furthermore, using a differences-in-differences empirical strategy, I find that small-risky firms reduce more their leverage and capital expenditures relative to large-high credit quality firms, even after controlling for firms' demand characteristics. In the last essay, written jointly with Heitor Almeida, Miguel A. Ferreira and Igor Cunha, we exploit the sovereign ceiling policy by credit rating agencies to show that sovereign rating downgrades have a real impact on firm investment and financial policy. We identify these causal effects by exploring the effect of sovereign downgrades on corporate ratings that are due to the rating agencies' sovereign ceiling rules. We find that sovereign downgrades lead to greater reduction in investment and leverage at firms that are at the sovereign rating bound than at otherwise similar firms that are below the bound. Consistent with a contraction in capital supply, bond yields of firms at the bound increase more than yields of firms below the bound. / Thesis (PhD) — Boston College, 2014. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

This thesis examines an impact of Greek membership in eurozone on a trustworthiness of Greek economy. In order to do that, it uses a methodology of rating agency Moody´s, on which it applies macroeconomic data. The goal is to identify key factor, which caused the discrepancy between awarded rating and real economic stability. The text itself is divided into two thematic parts. The first introduces an institution of rating Agency and explains the Sovereign Rating Methodology 2013. The second than analyze Greek economy using this methodology and applies findings on the causes of Greek debt crisis. Even though Greek membership in eurozone indeed lowered the interest rates of their bonds, direct impact of this membership on country rating wasn´t proved. Therefore one of the reasons of Greek crisis was also a moral hazard, when the financial markets relied on the fact, that eurozone will not let a member state go bankrupt.

Diplomová práce se zaměřuje na zkoumání fiskálních pravidel - omezení fiskální politiky, která byla přijata v průběhu devadesátých let 20. století. Zkoumané země se dělí na dvě skupiny. Zaprvé se jedná o anglofonní země (Spojené království, Austrálie, Nový Zéland) s odlišným právním a politickým systémem než země druhé skupiny - Evropské měnové unie, které musely akceptovat tzv. Maastrichtská kritéria a Pakt stability a růstu. Analýza efektivnosti fiskální pravidel, která zahrnují pravidla numerická, procesní i transparentnostní, se zaměří na rizikovou prémii u úrokových sazeb finančního trhu jednotlivých zemí, na tzv. sovereign rating hodnotící kreditní riziko a samozřejmě také na konkrétní výsledky působení pravidel na fiskální agregáty jednotlivých zemí. Ačkoliv byla klíčová pravidla přijata až v devadesátých letech, reflektovala určitý vývoj veřejných financí v minulosti, proto se práce zaměří také na historické aspekty vzniku těchto pravidel, které hrály důležitou roli při jejich konstrukci. Výsledkem analýzy pak bude mezinárodní komparace efektivity fiskálních pravidel, která pomůže formulovat obecnější hospodářsko-politická doporučení pro země s rizikovým vývojem veřejných financí.

O objetivo desta dissertação é avaliar o impacto de mudanças de rating soberano sobre a taxa de câmbio de países emergentes. Embora a literatura relacionada já tenha estudado o impacto de mudanças de rating soberano sobre ações, títulos e até fluxo de capital, nada foi feito sobre taxas de câmbio. Todavia, taxas de câmbio devem responder de maneira interessante a mudanças de rating, pois além de serem ativos financeiros, as moedas desempenham a função de intermediar o investimento estrangeiro nos demais ativos domésticos. Empregamos a metodologia de estudo de evento acrescentando a ela uma modificação que nos permite controlar a análise por efeitos agregados. Utilizando uma base de dados diária de taxas de câmbio de 23 países emergentes encontramos, grosso modo, evidências de que downgrades estão associados a depreciações da moeda doméstica, ao passo que, upgrades não provocam nenhuma reação significativa na taxa de câmbio. Este resultado vai ao encontro da literatura que estuda o impacto de mudanças de rating em ações, títulos e fluxo de capitais. Além disso, dentre ainda outros resultados, encontramos evidências de que o mercado antecipa o evento relevante e que não há efeitos defasados. / The purpose of this dissertation is to examine the impact of sovereign rating changes on the exchange rate of emerging markets. Although the related literature has studied the impact of sovereign rating changes on stocks, bonds and even capital flows, nothing has been done on exchange rates. However, exchange rates should respond in an interesting way to rating changes because the currency is a financial asset and has a role in intermediating foreign investment in other domestic assets. We employ the event study methodology by adding to it an amendment that allows us to control the analysis by aggregate effects. Using a database of daily exchange rates of 23 developing countries, we found evidence that downgrades are associated with depreciations of the domestic currency, whereas, upgrades do not cause any significant reaction in the exchange rate. This result is consistent with the literature that studies the impact of rating changes on stocks, bonds and capital flows. Moreover, even among other results, we find evidence that the market anticipates the relevant event and there is no lagged effects on the market.

O objetivo desta dissertação é avaliar o impacto de mudanças de rating soberano sobre a taxa de câmbio de países emergentes. Embora a literatura relacionada já tenha estudado o impacto de mudanças de rating soberano sobre ações, títulos e até fluxo de capital, nada foi feito sobre taxas de câmbio. Todavia, taxas de câmbio devem responder de maneira interessante a mudanças de rating, pois além de serem ativos financeiros, as moedas desempenham a função de intermediar o investimento estrangeiro nos demais ativos domésticos. Empregamos a metodologia de estudo de evento acrescentando a ela uma modificação que nos permite controlar a análise por efeitos agregados. Utilizando uma base de dados diária de taxas de câmbio de 23 países emergentes encontramos, grosso modo, evidências de que downgrades estão associados a depreciações da moeda doméstica, ao passo que, upgrades não provocam nenhuma reação significativa na taxa de câmbio. Este resultado vai ao encontro da literatura que estuda o impacto de mudanças de rating em ações, títulos e fluxo de capitais. Além disso, dentre ainda outros resultados, encontramos evidências de que o mercado antecipa o evento relevante e que não há efeitos defasados. / The purpose of this dissertation is to examine the impact of sovereign rating changes on the exchange rate of emerging markets. Although the related literature has studied the impact of sovereign rating changes on stocks, bonds and even capital flows, nothing has been done on exchange rates. However, exchange rates should respond in an interesting way to rating changes because the currency is a financial asset and has a role in intermediating foreign investment in other domestic assets. We employ the event study methodology by adding to it an amendment that allows us to control the analysis by aggregate effects. Using a database of daily exchange rates of 23 developing countries, we found evidence that downgrades are associated with depreciations of the domestic currency, whereas, upgrades do not cause any significant reaction in the exchange rate. This result is consistent with the literature that studies the impact of rating changes on stocks, bonds and capital flows. Moreover, even among other results, we find evidence that the market anticipates the relevant event and there is no lagged effects on the market.

This paper performs an analysis of rating agencies and evaluates their importance for financial markets and economic policy. The importance of rating agencies and their ratings is assessed based on two criteria -- independence and accuracy of ratings, both criteria are analysed in detail from different views throughout this paper. Independence of rating agencies is considered in terms of historical context and the most important development milestones and trends, in terms of market positioning and demand for services of rating agencies, in terms of ownership structures and financing models. Accuracy of ratings is considered by historical analyses of sovereign ratings from the times of the Asian financial crisis, the European debt crisis and sovereign debt defaults and restructuralisations since 1990. In the issue of independence, the paper has revealed several risk factors, mainly in relation to financing model "issuer pays". In the issue of sovereign rating accuracy, the paper has come to a conclusion that rating agencies were only able to identify the most visible negative trends -- defaults and restructuralisations of debts in countries, where the problems had developed gradually. On the other hand, in surprising and sudden cases such as the Asian financial crisis and the European debt crisis, rating agencies were suprised just like the wider investor's public.

The thesis is devoted to the position of rating agencies in the financial markets. The main aim is to predict the position of these companies, which is currently mainly influenced by the European politicians. Politicians criticize them and try to limit their power. The essence of this thesis is to summarize the reasons for their criticism, focusing on reduction of sovereign ratings. Then it's discussed a downgrading the USA and France. For the first time in a history they lost their AAA rating. The last chapter is devoted to the possible position of rating agencies. The first option is the establishment of the European rating agency, the other one is tightening regulation and the last is a situation if the rating agencies were abolished.

In the first chapter the paper is focused on sovereign rating, it describes the history and explains the basic characteristics in the context of its usual usage. In the second chapter the basics behind the Arrangement on Officially Supported Export Credits are explained. Because the main purpose of this paper is to compare sovereign rating and the country risk classification based on the Arrangement, the chapter focuses especially on the Knaepen Package that introduced country risk classification to the Arrangement. In the chapter there is also the introduction to the Malzkuhn-Drysdale Package. In the third and fourth chapter sovereign ratings and county risk classifications are compared on theoretical basis. There were used several different criteria, e.g. methodology of rating/classifying, time necessary for adjustment and criteria for evaluation. The fifth chapter is focused on Basel I-III, the connection between Basel capital adequacy and both credit risk evaluation systems is explained. In the following chapter, the question of guilt of rating agencies and their role in the outbreak of financial crisis is discussed. The last chapter is based on the case study that describes the difference between development of financial crisis in Italy and Greece and its impact on rating grades and country risk classification.

Credit rating agencies judge the creditworthiness of the debtors and debt obligations and the relative probability of their default. Credit rating plays a very important role in the financial markets. It influences the behavior of all participants (investors, debtors and regulators) of the market transactions. The first part of the thesis deals with definition and function of the credit rating. The main controversial points in the activity of the credit rating agencies will be discussed, as well as how the industry is regulated. In the second part it is claimed that the opinions of the credit rating agencies on sovereign bonds (sovereign rating) contribute to the overheating of the economies or to the deeper recession due to procyclicity of the rating. The actual credit rating of the country will be compared with a rating based on a theoretical model designed with publicly available economic data.

This master thesis analyzes the relationship between the change of sovereign rating and market behaviour. The first part is devoted to rating itself. I present the various types of the rating, development, structure and risks of the market for credit rating agencies. The second part focuses on the nature of government bonds and the methodology for determining credit rating. The third part contains an analysis of market indicators in selected countries, econometric analysis of the relationship between credit ratings and risk perception in the market and comparison with other indicators of potential default. I summarize all the knowledge in the conclusion and I am trying to predict future developments in the market for credit rating agencies.