This paper aims to realize that the capital structure decisions will be affected by the credit rating of a firm. According to the argument made by Kisgen(2006), a firm will incur discrete costs and benefits as a result of the level changes of its credit rating situation, and then causes jumps on firm¡¥s value. In order to maximize firm value, firms near a credit rating downgrade or upgrade will issue less debt relative to equity (as a portion of assets) than firms not near the change in credit raring, attempting to gain the advantage of an upgrade and avoid the disadvantage of a downgrade. The firms near a rating change are defined in different ways, and four hypotheses are tested empirically, using pooled OLS, fixed effect model and random effect model, to know how the concerns of firms¡¥ credit rating changes directly affect its financing decisions on debt and equity structure. Plus or Minus test(POM test), High or Low test(HOL test), Investment Grade or Speculation Grade test(IG/SG test) and Watch list test(Wlist test) are used to examine the influences of credit rating on firms¡¥ financing decisions. The firm which has a credit rating at the beginning of the year in all industries in Taiwan is included in our sample, and the sample period is from 2000 to 2007. As a result, although control variables such as leverage, profitability and firm size have significant impacts on financing decision, we observe that the impacts of credit ratings on net debt issuance are negative but not statistically significant in all models except in HOL test, in which credit rating variables are negative and significant at 5% confidence level. For this reason, the effect of credit ratings on firms¡¥ financing decision can not be concluded and should be examined further.

The question of whether ratings agencies convey new information to financial markets when they assign new ratings or change previous ratings has been debated for at least 40 years. In this study I first examine equity market, bond market and CDS market reactions to long and short term rating changes from S&P, Fitch and Moody's. I find that not all the credit rating changes affect the market but only those classified as unanticipated. Subsequently, I study whether the regulatory setting, in which the Credit Ratings Agencies work, can possibly affect the financial markets reactions. Lastly I show that the probability of a future rating change is severely affected by different factors proportional hazard rate models.

Background and problem: Recent banking and financial crises has undoubtedly stressed the importance of a sound and well-functioning banking system. The banking industry is in critical need of strong governance stemming from their opaque and complex business along with the high social costs incurred in the event of bank failure. Previous research has shown that credit rating changes serve as a governance mechanism on the U.S. banking market, affecting real economic decision-making. However, no existing research has been conducted in an European context, rendering the objective of this thesis. Objective: The objective of this study is to examine the governance effects of credit rating changes on banks within the European banking market. Methodology: The objective of this thesis is achieved by using a novel and comprehensive data set comprising credit rating changes and financial accounting variables of 202 banks on the European banking market between the time period 1997-2011. A quantitative method is implemented to examine banks’ financial accounting variables in the event of credit rating changes. In order to measure the isolated effect from a credit rating change, the difference-in- differences econometric approach in combination with a Propensity Score Matching procedure will be conducted. Conclusions: The results from this research provide numerous evidence that credit rating changes have consistent governance effects on the European banking market. In the event of a credit rating downgrade, banks on the European banking market decrease in size and set aside more capital as reserves for non performing loans. In the event of a credit rating upgrade, banks increase in size and re-allocate assets, providing evidence that these banks have a more optimistic view of their financial conditions. The findings in this thesis are in line with previous research on the U.S. banking market, however, banks on the European banking market seems to have, on average, a more conservative attitude towards risk-taking in the event of a credit rating change.

Thesis (Ph. D.)--University of Chicago, Dept. of Economics, March 2001. / Includes bibliographical references. Also available on the Internet.

No description available.

Background: The credit rating agencies have been heavily contested and criticized. In addition to this, other informational sources may potentially deliver the information that the CRA is intended to provide. This may have changed their role in reducing information asymmetry in the financial market. Purpose: This thesis will investigate (i) whether changes (upgrade/downgrade) in credit ratings lead to abnormal returns in share value, and thereby provide useful information to potential and current investors. The thesis will also (ii) examine whether there are significant differences between the periods before and after the GFC in 2008. Method: Regression based event study using a dummy-variable approach. Conclusions: No strong evidence that credit ratings have a significant effect on stock prices in the European stock market. Small indications that the market is responding more strongly to a rating change announcement during the period 2000-2008 compared to 2009-2019.

The 2007/2008 financial crisis and the role that credit rating agencies (CRA’s) played leading up to the crisis precipitated the introduction of CRA regulation worldwide. By using Giddens’s (1990. 1991) theory of modernity as a framework, this study explores the rationale for the introduction of CRA regulation in South Africa (the Credit Rating Services Act No. 24 of 2012), with a specific focus on trust and legitimacy. The findings in this study suggest that while the introduction of new regulation is a mechanism used to legitimise the capital system, it often has limitations and unforeseen consequences. This study used detailed interviews with some of South Africa’s leading experts on the credit rating industry to explain the reasoning for South African CRA regulation. Lastly, this thesis adds to the scant body of interpretive (and normative) research on the use of arms-length regulation in modern governance discourse, and it is also the first research to explore CRA regulation in the South African context.

Issuers’ credit ratings change by one or more notches when credit rating agencies provide new ratings. Unique to the literature, I study the influences affecting multi notch versus single notch rating upgrades and downgrades. For Standard & Poors data, I show that rating changes with multiple notches provide more information to the market than single notch rating changes. Consistent with prior literature on the business cycle, I show that investors value good news rating changes (upgrades) more in bad times (recession) and that investors value bad news rating changes (downgrades) more in good times (expansion). I model and test probit models using variables capturing the characteristics of the previous issuer’s credit rating, liquidity, solvency, profitability, and growth opportunity to determine the classification of single notch versus multi notch rating changes. The determinants of multi notch versus single notch rating changes for upgrades and downgrades differ. Business cycle influences are evident. Firms that have multi notch rating upgrades and downgrades have significantly different probit variables vis-à-vis firms that have single notch rating upgrades and downgrades. The important characteristics for determining multiple notch upgrades are a firm’s prior rating change, prior rating, cash flow, total assets and market value. The important characteristics for determining multiple notch downgrades are a firm’s prior rating change, prior rating, current ratio, interest coverage, total debt, operating margin, market to book ratio, capital expenditure, total assets, market value, and market beta. The variables that differ for multi notch upgrades in recessions are cash flow, net income, operating margin, market to book ratio, total assets, and retained earnings. The variables that differ for multi notch downgrades in expansions are a firm’s prior rating change, current ratio, interest coverage ratio, debt ratio, total debt, capital expenditure and market beta. The power of the explanatory tests improves when the stage of the business cycle is considered. Results are robust to consideration of rating changes across rating categories, changes from probit to logit, alternative specifications of accounting variables, lags and leads of recessions and expansions timing, Fama and French industry adjustments, and winsorization levels of variables.

The aim of the thesisis an analysis of EU credit rating agencies legal regulation in comparison with regulation in the USA. This analysis outlines the crucial and less important aspects of regulation in EU and USA. One of Chapters of this study is also describing the reflection of EU credit rating agencies regulation to Czech law. The thesis is composed of five chapters. First of them explains basic context and position of credit rating agencies. Chapter two is focused on EU legislation. Chapter Three briefly describes the position of credit rating agencies in the Czech Republic. Chapter Four illustrates the credit rating agencies legal regulation in USA. The text is mainly focused on Two of the EU regulations and, regarding the US legislation, on the Credit Rating Agency Reform Act, part of the Dodd - Frank Act and some of the more important rules conducted by Security Exchange Commission. The comparison of both legal systems is placed in Chapter Five and completed with commentary.

The need for regulation of the credit rating agencies (CRAs) arose due to their role in the subprime mortgage crisis. The CRAs awarded risky securities '3-A' investment grade status and then failed to downgrade them quickly enough when circumstances changed which led to investors suffering substantial losses. The causes identified by the regulators for the gatekeeper failure were conflicts of interest (as the issuers of these securities pay for the ratings); lack of competition (as the Big Three CRAs have dominated the market share); and lack of CRA regulation. The regulators, both in the US and EU, have tried to address these problems by introducing soft law self-regulation in accordance with the International Organisation of Securities Commissions Code and hard law statutory regulation such as that found in the "Reform Act" and "Dodd-Frank Act" in the US and similar provisions in the EU. This thesis examines these provisions in detail by using a doctrinal black-letter law method to assess the success of the regulators in redressing the problems identified. It also examines the US case law regulation relating to the legal liability of CRAs. The findings are that the US First Amendment protection, exclusion clauses and case law, all lack a deterrent effect on the actions of CRAs. As CRAs have escaped substantial damages, investors are left uncompensated for their losses. The thesis concludes that the issues of conflicts of interest and an anti-competitive environment persist. This thesis recommends the introduction of liability for the CRAs based on the Australian Bathurst case and which should be put in a statutory footing, including the requirements that are needed for making exclusion clauses effective. Rotation of CRAs for every three years would minimise the conflicts of interest. Regulators should require CRAs to purchase professional indemnity insurance, if available, to compensate investors.