Communication of Credit Rating Agencies and Financial Markets

2021 ◽  
Author(s):  
Lorenzo Menna ◽  
Martín Tobal
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Rating Agencies

China's Emerging Credit Rating Industry: The Official Foundations of Private Authority

2008 ◽  
Vol 193 ◽  
pp. 65-83 ◽  
Author(s):  
Scott Kennedy
Keyword(s):  
Financial Markets ◽  
Stock Markets ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Bond Ratings ◽  
Trade Associations ◽  
Rating Agencies ◽  
Market Participants ◽  
Private Authority ◽  
Private Actors

AbstractAlthough China has had difficulty improving the performance of its banks and stock markets, it has struggled even more to develop a credit rating industry. Credit rating agencies (CRA), which provide bond ratings, are vital to financial markets in advanced capitalist countries, but China's credit rating companies are weak and have had little influence over the behaviour of those who issue or invest in bonds. Some argue that CRAs gain authority through their strong reputation in the eyes of market participants, but the experience of rating agencies in China supports evidence from elsewhere that their private authority is largely dependent on government mandate, a benefit China's CRAs have only recently begun to enjoy. Many private actors, from trade associations to charity groups, are struggling to gain public influence in China, but credit rating agencies may be the best barometer to measure the Chinese government's general stance towards private authority.

Too little, too late? Role of credit rating agencies in the Amtek AUTO default

2017 ◽  
Vol 7 (4) ◽  
pp. 1-22
Author(s):  
Shagun Thukral ◽  
Sunder Korivi ◽  
Dipasha Sharma ◽  
Dipali Krishnakumar
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Fixed Income ◽  
Red Flags ◽  
Content Type ◽  
Rating Agencies ◽  
Markets And Institutions ◽  
Analysis Process ◽  
Credit Analysis

Subject area Fixed Income markets, Financial Markets and Institutions. Study level/applicability This case can be used in a postgraduate finance course such as an MBA and executive program for courses such as Fixed Income Markets and Financial Markets and Institutions. Case overview In late August 2015, the sudden downgrade and eventual default of Amtek AUTO Ltd (Amtek) on its debentures upset mutual fund investors and regulators. Questions were raised about the credit rating agencies and their lack of timely action as well as about the independent credit analysis followed by fund houses to protect the interests of investors. One such investor, Suresh Nair, decided to gather all possible available information on Amtek to determine whether it was sheer negligence on the part of all parties involved or if Amtek was in fact in a situation of sudden distress. The case seeks to highlight the credit analysis process, while looking out for red flags to identify potential default or financial stress in a company. Expected learning outcomes To understand the credit analysis process through a fundamental analysis process. To analyze and interpret the financial position of the company through various financial ratios. Identifying “red flags” while evaluating a potential credit that pose as “risks” to credit assessment. Understanding the role and relevance of credit rating agencies in the bond market. 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. Subject code CSS 1: Accounting and Finance

scholarly journals Information as a condition of justice in financial markets: The regulation of credit-rating agencies

2017 ◽  
Author(s):  
Boudewijn de Bruin
Keyword(s):  
Credit Risk ◽  
Financial Markets ◽  
Institutional Investors ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Informational Needs ◽  
Sources Of Information ◽  
Rating Agencies ◽  
Mortgage Backed Securities

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, however, that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves.

scholarly journals Sovereign credit ratings and CDS spreads in Emerging Europe

Equilibrium ◽  
2020 ◽  
Vol 15 (3) ◽  
pp. 419-438
Author(s):  
Łukasz Dopierała ◽  
Daria Ilczuk ◽  
Liwiusz Wojciechowski
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Value Added ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
The Impact

Research background: Sovereign credit ratings play an important role in determining any country’s access to the international debt market. During the global financial crisis and the European debt crisis, credit rating agencies were harshly criticized for the timing of their announcements regarding ratings downgrades and the ranges of those downgrades. Therefore, it is worth considering whether the sovereign credit rating is still a useful benchmark for investors. Purpose of the article: This article examines whether credit rating agencies still provide financial markets with new information about the solvency of governments in Emerging Europe countries. In addition, it describes the differences in the effect of particular types of rating events on financial markets and the impact of individual agencies on the market situation. Our study also focuses on evaluating these occurrences at different stages of the business cycle. Methods: This article uses data about ratings events that took place between 2008 and 2018 in 17 Emerging Europe economies. We took into consideration positive, neutral, and negative events related to ratings changes and the outlooks reported by Fitch Ratings, Moody’s, and Standard & Poor’s. We used a methodology based on event studies. In addition, we performed Wilcoxon signed-ranks test and used a logit model to determine the usefulness of cumulative adjusted credit default swap (CDS) spread changes in predicting the direction of ratings changes. Findings & Value added: Our research provides evidence that the CDS market reflects information regarding government issuers up to three months before ratings downgrades are announced. Information reported to the market by ratings agencies is only relevant in the short timeframe surrounding ratings downgrades and upgrades. However, positive credit rating changes convey more information to the market. We also found strong evidence that, in the post-crisis period, credit ratings provide markets with less information.

scholarly journals The Credit Rating Agencies and Their Role in the Financial System

2019 ◽  
Author(s):  
Lawrence J. White
Keyword(s):  
United States ◽  
Financial Markets ◽  
Financial Institutions ◽  
Credit Rating ◽  
Financial System ◽  
The United States ◽  
Credit Rating Agencies ◽  
Financial Instruments ◽  
Rating Agencies ◽  
System P

Despite extensive criticism, the major credit rating agencies (CRAs)—Moody’s, Standard & Poor’s, and Fitch—remain central entities in the financial markets of the United States and Europe, especially with respect to bonds and similar financial instruments. This chapter provides a discussion of the role that the CRAs continue to play in the financial system and how and why they play that role. After a brief overview of the CRAs as providers of information that lessens the problems of asymmetric information in lending/borrowing markets, the chapter discusses the expanded use of the CRAs’ ratings in the prudential regulation of financial institutions and the problems that contributed to the financial crisis of 2008. The chapter concludes with a discussion of the likely direction of the CRAs and their regulation.

scholarly journals AN EMPIRICAL STUDY ON IMPACT OF CREDIT RATING ON CREDIT RISK OF BANKS: A LITERATURE REVIEW

2021 ◽  
pp. 31-37
Keyword(s):  
Literature Review ◽  
Credit Risk ◽  
Financial Markets ◽  
Credit Rating ◽  
Positive Impact ◽  
Credit Rating Agencies ◽  
Asymmetry Of Information ◽  
Rating Agencies ◽  
Research Gap ◽  
The Impact

In the financial markets, for investors, lenders, and issuers, credit rating agencies (CRAs) have a critical part in reducing the asymmetry of information between various parties. Credit ratings allow us to recognize the credit impending of a region's individuals. The paper clearly describes the role played in the establishment of a nation by credit rating agencies; there is a rise in new start-ups as all investors are rated favorably. Banks are helping to recognize the investment position of India. The main aim of the study is to analyze the research gap on the impact of credit rating on credit risk with a review of the literature. The study briefly explains the research gap which helps to analyze the factors which are responsible for credit risk. The study analyzes the definitions of basic terms, the origin of credit rating agencies’ objectives, and the scope of the present study and the literature review by assessing the credit rating users and examined the consequence of credit rating agencies on the Indian financial markets. Based on the nationwide and worldwide literature it is found that if the credit history of the investors is good then their credit score would be better and positive. It would also be incredibly convenient to collect loans. Finally, it is concluded that there is a positive impact of Credit Rating on Credit Risk of banking sectors in India.

scholarly journals Role and Regulation of Credit Rating Agencies: The European Way

2019 ◽  
Vol 9 (1) ◽  
pp. 209
Author(s):  
Giusy Cavallaro ◽  
Annarita Trotta
Keyword(s):  
Financial Markets ◽  
Financial Regulation ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
The European Union ◽  
Ongoing Debate ◽  
Rating Agencies ◽  
Regulation And Supervision ◽  
Key Characteristics ◽  
Gray Areas

Credit Rating Agencies (CRAs) play a key role in the financial markets: credit rating provides useful information to investors, and it is also widely used for regulatory purposes. Nevertheless, after the subprime meltdown, CRAs have been strongly criticized for worsening the crisis by overrating structured products. Consequently, regulators are reforming the rating industry, worldwide. Therefore, this article investigates the changes regarding the role and regulation of CRAs, focusing on the European Union. To achieve this investigation, the study explores existing literature and examines the European reforms. The research contributes to the ongoing debate on the innovation in financial regulation, by highlighting the key-characteristics of the European approach to CRAs’ regulation and supervision. The results note distinct phases of regulation and highlight that certain gray areas relating to business model, overreliance and civil liability should not be ignored.

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