India’s credit rating upgrade may hide fiscal risks

2017 ◽  
Keyword(s):  
Credit Rating ◽  
Content Type ◽  
Fiscal Risks

Headline INDIA: Credit rating upgrade may hide fiscal risks

The gamification of trust: the case of China’s “social credit”

2018 ◽  
Vol 36 (1) ◽  
pp. 93-107 ◽  
Author(s):  
Zahy Ramadan
Keyword(s):  
Conceptual Framework ◽  
Tax Evasion ◽  
Credit Rating ◽  
Rating System ◽  
Credit System ◽  
Content Type ◽  
Social Credit ◽  
Chinese Business ◽  
Area Of Interest ◽  
New Business

Purpose China is establishing a social credit rating system with the aim to score the trust level of citizens. The scores will be based on an integrated database that includes a vast range of information sources, rating aspects like professional conduct, corruption, type of products bought, peers’ own scores and tax evasion. While this form of gamification is expected to have dire consequences on brands and consumers alike, the literature in that particular area of interest remains non-existent. The paper aims to discuss these issues. Design/methodology/approach A conceptual framework is suggested that highlights early on the risks and implications on brands and companies operating in that particular upcoming landscape. Findings The gamification of trust that the social credit system focuses on presents potential risks on brand and consumer relationships. This in turn will affect brand sustainability vis-à-vis the expected drastic changes in the Chinese business landscape. This study suggests the strategies to follow which will be of high interest to companies, consumers, as well as to the Chinese authorities during and after implementation stage. Originality/value This paper is amongst the first to discuss the potential effects of the Chinese social credit rating system on brands. The conceptual framework fills a sizeable gap in the literature and pioneers the discussion on potential dilemmas brands will be faced with within this new business landscape.

Road to default: Tracoma holding Berhad Bai Bithaman Ajil Debt securities (BaIDS)

2015 ◽  
Vol 5 (5) ◽  
pp. 1-6
Author(s):  
A.M. Hafizi ◽  
Shahida Shahimi ◽  
Mohd Hafizuddin Syah Bangaan Abdullah ◽  
M. Badrul Hakimi Daud
Keyword(s):  
Learning Outcomes ◽  
Capital Market ◽  
Credit Rating ◽  
Subject Area ◽  
Capital Requirements ◽  
Fund Raising ◽  
Case Scenario ◽  
Worst Case ◽  
Content Type ◽  
Analytical Skills

Subject area Islamic Finance and Investment Study level/applicability Level of program/audience: Advanced undergraduate and postgraduate. Courses Intermediate and Advanced Finance, Economics, Islamic Economics & Finance, Islamic Banking & Finance, Islamic Capital Market and other relevant courses. Specifictopics/syllabus Capital markets instruments, conventional or Islamic. Case overview This case focuses on Tracoma Holding Berhad Bai Bithaman Ajil Debt Securities (BaIDS) amounting to RM 100 million which was issued by Tracoma Holding Berhad in 2005. It was the first issuance of a sukuk (Islamic debt securities or bond) by the company. The proceeds were used to finance its growth and to repay existing bank borrowings and capital requirements. This case is interesting, as it allows students to study the bai bithaman ajil sukuk structure and issuance process in the Malaysian capital market. It also provides basic financial transaction and credit rating of sukuk which requires analytical skills. Being a debt-based facility, the sukuk was subjected to credit rating evaluation by the MARC, the rating agency appointed by the company. Further downgrading of the sukuk meant it would lead to the worst-case scenario. Some actions needed to be taken to solve this issue; therefore, the CFO suggested an urgent meeting with the sukuk holders. Expected learning outcomes The students should be able to: understand the issuance process and the principle of BBA (bai bithamin ajil) in sukuk structure; understand reason(s) methods of fund raising by firm and the allocations of fund; understand the sukuk default issue; analyze the reasons for sukuk default; understand the importance of debt securities credit ratings; and identify investors' protection in the case of sukuk default. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes.

Pandemic spending demands raise fiscal risks in Chile

2021 ◽  
Keyword(s):  
Content Type ◽  
Fiscal Risks

Headline CHILE: Pandemic spending demands raise fiscal risks

Assessing sovereign risk: the case of rich countries

2014 ◽  
Vol 6 (3) ◽  
pp. 212-225 ◽  
Author(s):  
Norbert Gaillard
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Content Type ◽  
The Great Recession ◽  
Market Participants ◽  
Investment Grade ◽  
Rich Countries

Purpose – This paper aims to shed new light on the inability of credit rating agencies (CRAs) to forecast the recent defaults and so-called quasi-defaults of rich countries. It also describes how Moody’s sovereign rating methodology has been modified – and could be further improved – to solve this problem. Design/methodology/approach – After converting bond yields into yield-implied ratings, accuracy ratios are computed to compare the respective performances of CRAs and market participants. Then Iceland’s and Greece’s ratings at the beginning of the Great Recession are estimated while accounting for the parameters included in the new methodology implemented by Moody’s in 2013. Findings – Market participants outperformed Moody’s and Standard & Poor’s in terms of anticipating the sovereign debt crisis that hit several European countries starting in 2008. However, the new methodology implemented by Moody’s should lead to more conservative and accurate sovereign ratings. Originality/value – The chronic inability of CRAs to anticipate public debt crises in rich countries is dangerous because the countries affected – which are generally rated in the investment-grade category – are substantially downgraded, amplifying the sovereign debt crisis. This study is the first to demonstrate that Moody’s has learned from its recent failures. In addition, it recommends ways to detect serious threats to the creditworthiness of high-income countries.

Using blockchain technology in credit rating industry to promote an innovative bond-pays model

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Krishna Vishwanath Iyer ◽  
V.V. Ravi Kumar
Keyword(s):  
Business Models ◽  
Credit Rating ◽  
Content Type ◽  
Concept System ◽  
Blockchain Technology ◽  
Proposed Model ◽  
Business Functions ◽  
Market Distortion ◽  
Practical Implications ◽  
Inflation Alternative

Purpose This paper aims to propose an innovative blockchain-based system enabling implementation of a bond-pays model in credit rating industry. Issuer-pays model has led to conflict of interest resulting in rating shopping and inflation. Alternative business models have their own problems, e.g. investor-pays model suffers from “free rider” and public dissemination challenges, whereas government-controlled business models can lead to market distortion. Bond-pays model has been difficult to implement owing to operational difficulties in managing co-ordination amongst multiple entities involved, often with conflicting goals. Blockchain technology enables inter-organizational systems that foster trust amongst non-trusting entities, facilitating business functions such as credit rating to be carried out. Design/methodology/approach This paper outlines current processes in credit rating business that has led to repeated rating failures and proposes a new set of processes, leveraging capabilities of blockchain technology to enable implementation of an arms-length bond-pays model. Findings A proof-of-concept system, namely, rating chain has been designed to implement a small part of the proposed model to establish technical feasibility in a blockchain environment. Practical implications A fully functional blockchain-based system on bond-pays business model, if built and adopted, could impact how credit rating market functions currently and could contribute to a reduction in rating-related challenges. Originality/value The proposal to adopt blockchain technologies in implementing a bond-pays model in credit rating industry is a novel contribution.

Russia's central bank will anticipate sanction risks

2021 ◽  
Keyword(s):  
Exchange Rate ◽  
Credit Rating ◽  
Bond Market ◽  
Secondary Market ◽  
Foreseeable Future ◽  
Foreign Reserves ◽  
Foreign Investors ◽  
Content Type ◽  
Economic Fundamentals ◽  
Sovereign Credit Rating

Significance Because the risk of sanctions was priced into Russian bond prices and the ruble exchange rate, the market reaction to the measures announced on April 15 was muted. US investors can still buy and hold OFZs and Eurobonds on the secondary market, but the prospect of further restrictions are possible. Impacts Sanctions risks will weigh down Russia's sovereign credit rating for the foreseeable future. Diminished liquidity in the bond market will make it difficult to price new Russian corporate debt, particularly for new issuers. Strong economic fundamentals and high foreign reserves will encourage foreign investors to return once uncertainty subsides.

Credit relevance after mandatory IFRS adoption in deposit money banks of Nigeria

2020 ◽  
Vol 5 (1) ◽  
pp. 47-61
Author(s):  
Dagwom Yohanna Dang ◽  
James Ayuba Akwe ◽  
Salisu Balago Garba
Keyword(s):  
Financial Reporting ◽  
Credit Rating ◽  
Financial Reports ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Secondary Sources ◽  
Ifrs Adoption ◽  
Regulatory Authorities ◽  
Significant Difference

PurposeCredit relevance of financial reporting can be influenced by change in financial reporting framework. This study aims to examine the effect of mandatory international financial reporting standards (IFRS) adoption on credit relevance quality of financial reporting of deposit money banks (DMBs) in Nigeria.Design/methodology/approachThis study uses difference-in-differences (D-in-D) design for its modelling. Panel data regression analysis based on the D-in-D model is used in analysing the data collected from secondary sources.FindingsThe findings of this study are that based on the D-in-D approach, there is a significant and positive effect of mandatory IFRS adoption on credit relevance quality of financial reporting of DMBs in Nigeria, and that there is also a significant difference in the credit relevance quality of financial reporting of mandatory adopting banks in the post-mandatory IFRS adoption period compared to pre-mandatory IFRS adoption period.Research limitations/implicationsTo the best of this study's review, there is inadequacy of literature within the credit relevance research in Nigeria. In the light of this, this study intends to fill the gap.Practical implicationsThis study is specifically important to regulatory authorities, both primary and secondary regulators. Specifically, this study has implications in the regulatory roles of Central Bank of Nigeria (CBN) and Financial Reporting Council of Nigeria (FRC). However, the study recommends that regulatory authorities should encourage DMBs to avail their financial reports annually to credit rating agencies (local and international) for proper evaluation for subsequent ratings.Originality/valueThe peculiarities in this study, that is the utilisation of the D-in-D design and the use of credit relevance metric as the dependent variable, made this study important and novel to push the frontier of existing knowledge.

A comparative study of economic growth as a key determinant of sovereign credit ratings in Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Misheck Mutize ◽  
McBride Peter Nkhalamba
Keyword(s):  
Economic Growth ◽  
Credit Rating ◽  
Credit Ratings ◽  
Credit Rating Agencies ◽  
African Union ◽  
African Countries ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings

PurposeThis study is a comparative analysis of the magnitude of economic growth as a key determinant of long-term foreign currency sovereign credit ratings in 30 countries in Africa, Europe, Asia and Latin America from 2010 to 2018.Design/methodology/approachThe analysis applies the fixed effects (FE) and random effects (RE) panel least squares (PLS) models.FindingsThe authors find that the magnitude economic coefficients are marginally small for African countries compared to other developing countries in Asia, Europe and Latin America. Results of the probit and logit binary estimation models show positive coefficients for economic growth sub-factors for non-African countries (developing and developed) compared to negative coefficients for African countries.Practical implicationsThese findings mean that, an increase in economic growth in Africa does not significantly increase the likelihood that sovereign credit ratings will be upgraded. This implies that there is lack of uniformity in the application of the economic growth determinant despite the claims of a consistent framework by rating agencies. Thus, macroeconomic factors are relatively less important in determining country's risk profile in Africa than in other developing and developed countries.Originality/valueFirst, studies that investigate the accuracy of sovereign credit rating indicators and risk factors in Africa are rare. This study is a key literature at the time when the majority of African countries are exploring the window of sovereign bonds as an alternative funding model to the traditional concessionary borrowings from multilateral institutions. On the other hand, the persistent poor rating is driving the cost of sovereign bonds to unreasonably high levels, invariably threatening their hopes of diversifying funding options. Second, there is criticism that the rating assessments of the credit rating agencies are biased in favour of developed countries and there is a gap in literature on studies that explore the whether the credit rating agencies are biased against African countries. This paper thus explores the rationale behind the African Union Decision Assembly/AU/Dec.631 (XXVIII) adopted by the 28th Ordinary Session of the African Union held in Addis Ababa, Ethiopia in January 2017 (African Union, 2017), directing its specialized governance agency, the African Peer Review Mechanism (APRM), to provide support to its Member States in the field of international credit rating agencies. The Assembly of African Heads of State and Government highlight that African countries are facing the challenges of credit downgrades despite an average positive economic growth. Lastly, the paper makes contribution to the argument that the majority of African countries are unfairly rated by international credit rating agencies, raising a discussion of the possibility of establishing a Pan-African credit rating institution.

Investors’ probable solutions to their problems: a study of Punjab

2018 ◽  
Vol 60 (2) ◽  
pp. 355-372
Author(s):  
Jaspreet Kaur
Keyword(s):  
Factor Analysis ◽  
Stock Market ◽  
Capital Markets ◽  
Credit Rating ◽  
National Level ◽  
Sampling Technique ◽  
Simple Random Sampling ◽  
Content Type ◽  
Analysis Technique ◽  
The Impact

Purpose Small and ignorant investors have had very unpleasant experiences in the stock market. They should be alert and have proper knowledge and understanding of the various problems that can arise in their dealings and how these can be resolved. This paper aims to analyse the investors’ probable solutions to their investment-related problems by using descriptives and factor analysis technique. Only Securities and Exchange Board of India (SEBI) can ensure a free and fair market and take India into league of major global capital markets in the next round of reforms. Design/methodology/approach By personally visiting the offices of the stockbrokers, 1,000 questionnaires have been distributed among retail equity investors of Punjab, i.e. Amritsar, Jalandhar, Ludhiana and Mohali. Stockbrokers have been selected using simple random sampling technique because of their large number. In total, 373 questionnaires have been filled up by the respondents, and 45 questionnaires have been found to be incomplete and thus have been excluded from the analysis. Remaining 328 questionnaires have been used for the analysis. The objective of the research is to study the investors’ probable solutions to their investment-related problems. The collected data have been analysed using descriptives and factor analysis technique. Findings It has been found that 24.7 per cent retail equity investors have filed complaints while dealing in the securities market; on the other hand, 75.3 per cent retail equity investors have not filed any complaint neither against the company nor against the intermediaries. It has been found that the authorities have taken 12-90 days and even four-five months in providing first reply to their complainants. Moreover, it has been found that in some of the cases, SEBI has written to the concerned companies to resolve the complaints, and some issues have been still pending with SEBI. It has been revealed that SEBI has taken quite long time to resolve the complaints, and equity investors have not been satisfied with the decisions of the SEBI. This study has further highlighted the importance of variables considered by investors as probable solutions to their problems while dealing with securities. The highest mean score has been found for the variable grievance redressal mechanism has been slow, followed by investors have been exploited by the malpractices of companies, merchant bankers and auditors, stronger regulations have been required to strengthen investor protection, investor has yet not educated enough to discriminate between good and not-so-good scrips, etc. These 22 variables measuring the construct of investors’ probable solutions to their problems have been analysed with the help of factor analysis. Six factors have been identified with the help of factor analysis, i.e. stability measures for stock market, investor awareness and education norms, measures to impart knowledge to investors, measures to protect investor rights, audit of companies and investor grievance redressal, and these factors have together explained 68.441 per cent of the variance in data. Research limitations/implications Based on the study done by the researcher, the following suggestions are identified for further research. As the present study is at a state level, it could be extended to national level. The impact of retail investment in capital market may be studied in view of rural investors. The study may further be carried out to analyse the impact of reforms on the functioning of stock exchanges. A study on the awareness of women investors about retail investment pattern could be attempted. Implications of internet stock trading in India can be taken up for study. Impact of technological innovation in capital markets can be studied. Practical implications This study would be of great use for investors who make decisions regarding investment. This study will help policymakers in formulating strategies and will also help credit rating agencies in rating the investment instruments. Social implications This study is of great help for investors and SEBI. This study guides the investors regarding various laws that have been formulated for their protection and guides the SEBI in making strict regulations for the protection of the investors. Originality/value This task is 100 per cent original and some authors have been quoted.

Do managers manipulate earnings to influence credit rating agencies’ decisions?

2017 ◽  
Vol 16 (3) ◽  
pp. 366-384
Author(s):  
Qiuhong Zhao
Keyword(s):  
Earnings Management ◽  
Credit Rating ◽  
Conflicts Of Interest ◽  
Real Earnings Management ◽  
Management Behavior ◽  
Wall Street ◽  
Content Type ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Management Measures

Purpose This study aims to investigate whether firms engage in earnings management behavior that attempts to manipulate Credit Rating Agency (CRA) perceptions during the Watchlist process and, if so, whether earnings management behavior appears to influence CRAs’ decisions. Design/methodology/approach To measure earnings management activities, this paper computes accrual-based and real earnings management measures in the year or in the quarter immediately before the Watchlist resolutions for all negative and positive Watchlist firms. To examine the association between the levels of earnings management and Watchlist resolutions, a logit model is applied to the data obtained from a sample of Watchlist firms. Findings Some evidence suggests that managers in Watchlist firms manage earnings in attempts to gain favorable Watchlist treatment. The findings are consistent with the Graham et al.’s (2005) survey evidence, which shows that one of the primary reasons for earnings management is to gain (or preserve) a desirable rating. In addition, CRAs appear to be misled by these attempts during the negative Watchlist process period. Research limitations/implications The findings support SEC’s (2011, 2013a, 2013b) rules to reduce its reliance on credit ratings and the recent regulation reforms concerning the competition in the rating industry [the Credit Rating Agency Reform Act (2006)], and concerning conflicts of interest of CRAs among others [Dodd–Frank Wall Street Reform and Consumer Protection Act (2010)]. Originality/value While many studies examine whether managers use discretionary accruals as a tool to manage earnings to obtain favorable ratings, those studies do not consider manipulation of real operating activities to manage earnings and CRA perceptions.

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