The master thesis deals with the advanced methods for estimating credit risk parameters from market prices: probability of default (PD) and loss given default (LGD). Precise evaluation of these parameters is important not only for banks to calculate their regulatory capital but also for investors to price risky bonds and credit derivatives. We provide forward looking reduced-form analytical method for calculation of PD and LGD of corporate defaultable bonds based on their quoted market prices, prices of equivalent risk-free bonds and quoted credit default swap spreads of the issuer of these bonds. This is reversed to most of the studies on credit risk modeling, as aim is not to price instruments based on estimated credit risk parameters, but to calculate these parameters based on the available market prices. Furthermore, compared to other studies, the LGD parameter is assumed to be endogenous and we provide the method for its simultaneous calculation with the probability of default. Finally, using developed methods, we estimate implied PD and LGD for five European banks assuming that the risk is priced correctly by other investors and the markets are efficient. JEL Classification: C02, C63, G13, G33 Keywords: credit risk, loss given default, probability of default, credit default swap Author's...

Credit Contract This diploma thesis is concerned with the provision of credit on the basis of the Credit Contract under Sections 497 - 507 of the Commercial Code. The primary aim of this thesis is to provide a detailed analysis of the regulation of the Credit Contract in the Commercial Code. Within the analysis of particular questions concerned I try to take into consideration current developments in case law, doctrine and banking practices. The subject of my interest is not solely the Credit Contract itself. I also focus on imminently related contractual instruments such as the Loan Contract under the Civil Code or credit business terms. The goal of this thesis is also to point to significant interpretation problems along with my own critical view and proposed solutions. Furthermore, I point out in a limited extent to partial issues regarding the regulation of the Customer Credit. Finally, I could not omit the analysis of the regulation of the Credit Contract and its related contractual instruments in the new Civil Code. The definition, nature and economic importance of the credit are delineated in the first chapter. These opening remarks help the reader to better understand the further following chapters dealing with the Credit Contract itself. The second chapter concentrates on the system of...

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The thesis deals with process analysis (case study - streamlining the processing of credit). The thesis highlights the procedural problems encountered in a particular IT company in processing credit. The theme of the thesis implies the practical orientation of the work, even though the work is divided into two parts. The first and shorter part is a theoretical basis for the practical part. Author finds a possible solution to process problems in modeling of the credit processing's subprocesses and identifying and analyzing problems using the selected methodology PDCA. This methodology is selected on the basis of multi-criteria evaluation. The result of this work is the proposal of measures to identify procedural problems, which is a basis for streamlining the analysed process and its subprocesses. The thesis will be the basis for the introduction of procedural changes in processing credit. The PCDA methology is not complete just with analysis and identification of the problems, so the company will continue in collaboration with the author of the thesis to establish and monitor the proposed changes. Information for the thesis are drawn from business, internet and literary sources, but also from available scientific articles.

This dissertation is an analysis of the way businessmen relate to money. Specifically, it analyzes the factors contributing to the business sector's demand for funds during the period 1964-1966 in order to determine the role this demand played in the financial panic of 1966.

Abstract This paper presents a simple and transparent framework for the monetary transmission mechanism of the South African economy based on the model by Rudebusch and Svensson (1999). This model is extended to consider the long rate and the credit channel in the transmission mechanism. Firstly, we find that the credit channel plays a significant role in the transmission mechanism. Secondly, despite the backward looking nature of the model, impulse responses reveal that the term spread predicts output and inflation in the South African economy.

A economia brasileira é uma das maiores do mundo. Entretanto, em termos de crédito, o Brasil se compara às economias menos desenvolvidas do mundo. Este artigo avalia os determinantes do acesso ao crédito ao nível da firma. A amostra utilizada é formada por 9779 observações distribuídas de 1994 a 1998. Utilizamos a existência de dívida de longo prazo como um indicador de acesso ao crédito. Observou-se que empresas abertas têm maior probabilidade de acessarem crédito devido a maiores exigências legais em relação à regras contábeis e publicação de relatórios financeiros. Enquanto a lei de falências é federal, o enforcement é de responsabilidade das cortes estaduais. Verificamos que empresas sediadas em estados de menor enforcement estão mais sujeitas à restrição. Como esperado, o acesso ao crédito é maior para firmas maiores e com maior grau de imobilização. / Credit rationing is a well-established fact. The Brazilian economy is among the largest in the world. Nonetheless, in terms of credit Brazil compares to very underdeveloped countries. This article examines access to credit at the firm level (9779 observation corresponding to 2285 firms over the 1994-98 period). We use standing long-term debt as indicator of access to credit. We found that enterprises that due to their business organization are bound by law to more restrictive accounting rules and publication of financial statements have increased probability of accessing credit. The same happens to public companies. While Brazilian bankruptcy law is federal, state courts do the enforcement. We found that enterprises incorporated in states with comparatively poor enforcement are more subject to credit constraint. As expected, access to credit is improved with the size and degree of immobilization.

Thesis advisor: Fabio Schiantarelli / Thesis advisor: Thomas J. Chemmanur / After the 2007 financial crisis, a big attention has been dedicated to credit ratings. Whether ratings are capable to provide the most precise and timely information is a question that has been tackled from different angles. The possibility to discipline credit ratings via a regulatory mechanism, the influence that ratings may play on corporate governance decisions and the information they deliver in comparison to other financial intermediaries are the main points that this dissertation aims to address. The first paper compares the behavior of standard or issuer-paid rating agencies, represented by Standard & Poors (S&P) to alternative or investor-paid rating agencies, represented by the Egan-Jones Ratings Company (EJR) after the Dodd- Frank Act regulation is approved. Results show that both S&P and EJR ratings are more conservative, stable and, on average, lower after the Dodd-Frank implementation. However, EJR ratings are higher for firms that may generate high revenue for the rater. Additionally, I find that, after the regulation, S&P cares more about its reputation. Exploiting a measure that captures the bond marketís ability to anticipate rating downgrades, I show that, after Dodd-Frank, bond market anticipation decreases for S&P but increases for EJR, suggesting that S&P ratings are timelier. Finally, I study how the bond market responds to rating changes and how firms perceive ratings in their decision to issue debt in the post-Dodd-Frank period. Results suggest that both S&P downgrades and upgrades generate a greater bond market re- sponse. On the contrary, only EJR upgrades have a magnified effect on bond market returns. The greater informativeness of S&P ratings after Dodd-Frank is confirmed by the meaningful impact of these ratings on firm debt issuance. The second paper (coauthored with Annamaria C. Menichini) studies the relationship between credit rating changes and CEO turnover beyond firm performance. Using an adverse selection model that explicitly incorporates rating change related turnover, our model predicts that a downgrade triggers turnover, more so the lower the managerial entrenchment, but that this relation is weaker when the report provided by the rating agency is more reliable. Our empirical results support these predictions. We show that downgrades explain forced turnover risk, with the new CEO chosen outside the firm that has received the negative credit rating change. In addition, we find that the relation between rating changes and management turnover is stronger when the degree of managerial entrenchment is low, for firms characterized by a high level of investment and for firms less exposed to rating fees. Finally, we show that this relation has weakened in the post-2007 crisis period, in coincidence with the increased reputational concerns of the rating agencies. The results are robust to endogeneity concerns. The third paper (coauthored with Thomas J. Chemmanur and Igor Karagodsky) focuses on equity analysts, issuer-paid and investor-paid ratings. Equity analysts' forecasts and ratings assigned by issuer-paid credit rating agencies such as Standard and Poorís (S&P) and by investor-paid rating agencies such as Egan and Jones (EJR) all involve information production about the same underlying set of firms, even though equity analysts focus on cash flows to equity and bond ratings focus on cash flows to bonds. Further, the two types of credit rating agencies differ in their incentives to produce and report accurate information signals. Given this setting, we empirically analyze the timeliness and accuracy of the information signals provided by each of the above three types of financial intermediary to their investor clienteles and the information flows between these intermediaries. We find that the information signals produced by EJR are the most timely (on average), and seem to anticipate the information signals produced by equity analysts as well as by S&P. We find that changes in leverage are associated with lower EJR ratings but higher equity analysts' recommendations; further, credit rating changes by EJR have the largest impact on firms' investment levels. We also document an investor attention effect (in the sense of Merton, 1987) among stock and bond market investors in the sense that changes in equity analyst recommendations have a higher impact than either EJR or S&P ratings changes on the excess returns on firm equity, while EJR rating changes have a higher impact on bond yield spreads than either S&P ratings changes or changes in equity analyst recommendations. Finally, we analyze differences in bond ratings assigned to a given firm by EJR and S&P, and find that these differences are positively related to the standard proxies for disagreement among stock market investors.

We provide empirical evidence of the TED spread as a risk factor in the cross-section of stock returns. Portfolios with high sensitivities to the TED spread have high average risk-adjusted returns. The pricing of TED spread risk is especially strong among small caps. TED spread is a usual measure of funding difficulties in interbank markets and our results are consistent with the Margin-CAPM model of Garleanu and Pedersen (2011). / Esta dissertação apresenta evidência empírica da TED Spread como um fator de risco na cross-section dos retornos de ações. Portfólios com elevada sensibilidade à TED Spread possuem elevados retornos médios ajustados para outros fatores de risco. O apreçamento do risco de TED Spread é especialmente forte entre small caps. TED Spread é uma medida usual de dificuldades de financiamento em mercados interbancários e o resultado obtido é consistente com o modelo Margin-CAPM de Gârleanu and Pedersen (2011).

The influence of ‘credit crunch’ on Small and Medium sized Enterprises (SMEs) has been of concern to the government, regulators, banks, the enterprises and the public. Using a large dataset of UK SMEs’ records covering the early period of the ‘credit crunch’, the influence of the ‘credit crunch’ on SMEs have been studied. It uses cross-sectional method, panel data models and GAM to provide a detailed examination of SMEs performance. Both newly established and matured SMEs, segmented by age, are considered separately. The data contains 79 variables which covered obligors’ general condition, financial information, directors’ portfolio and other relevant credit histories. The ‘credit crunch’ is a typical ‘black swan’ phenomenon. As such there is a need to examine whether the stepwise logistic model, the industries prime modelling tool, could deal with the sudden change in SMEs credit risk. Whilst it may be capable of modelling the situation alternatives models may be more appropriate. It provides a benchmark for comparison to other models and shows how well the industry’s standard model performs. Given cross-sectional models only provide aggregative level single time period analysis, panel models are used to study SMEs performance through the crisis period. To overcome the pro-cyclic feature of logistic model, macroeconomic variables were added to panel data model. This allows examination of how economic conditions influence SMEs during ‘credit crunch’. The use of panel data model leads to a discussion of fixed and random effects estimation and the use of explanatory macroeconomic variables. The panel data model provides a detailed analyse of SMEs’ behaviour during the crisis period. Under parametric models, especially logistic regression, data is usually transformed to allow for the non-linear correlation between independent variable and dependent variable. However, this brings difficulty in understanding influence of each independent variable’s marginal effects. Another way of dealing with this is to add non-parametric effects. In this study, Generalized Additive Models (GAM) allows for non-parametric effects. A natural extension of logistic regression is a GAM model with logistic link function. In order to use the data in their original state an alternative method of processing missing values is proposed, which avoids data transformation, such as the use of weights of evidence (WoE). GAM with original data could derive a direct marginal trend and plot how explanatory variables influence SMEs’ ‘bad’ rate. Significant non-parametric effects are found for both ‘start-ups’ and ‘non-start-ups’. Using GAM models results in higher prediction accuracy and improves model transparency by deriving explanatory variables’ marginal effects.