Credit Rating Research Articles

ESG Rating System in Sustainable Finance: Challenges and Suggestions for Improvement

As global attention to sustainable development intensifies, Environmental, Social, and Governance (ESG) criteria have become vital indicators for assessing corporate non-financial performance. Nonetheless, current ESG rating systems encounter several challenges, including lack of standardization, insufficient data transparency, and market dependence on rating outcomes, which impede their widespread application in investment decisions. This paper systematically reviews the construction logic and practical applications of existing ESG rating systems, providing an in-depth analysis of the disparities among major rating agencies concerning indicator selection, weight allocation, and data sources. By elucidating the impact of these disparities on rating accuracy and consistency, the paper proposes a series of improvement recommendations, such as the standardization of global rating criteria, enhancement of data transparency, and the utilization of emerging technologies to optimize the rating process. This research aims to offer theoretical foundations and practical insights for the enhancement of ESG rating systems, facilitating a more precise assessment of corporate sustainability performance by investors. The ultimate objective is to advance the global green economy transition and provide support to policymakers for further refinement of regulatory frameworks.

Credit confidence: the impact of disclosure quality and audit quality on bank ratings in emerging economies

PurposeThis study aims to examine how banks’ credit ratings can be driven by the quality of the disclosed financial and nonfinancial information in emerging economies.Design/methodology/approachUsing a sample of 1,590 bank-year observations of 29 Islamic and 77 conventional banks across 17 MENA countries from 2006 to 2020, we conducted a random-effects regression model that is supported by various methods, including 2SLS and GMM models, to overcome the potential incidence of endogeneity concerns.FindingsWe found that the quality of voluntary disclosure positively influences the credit rating of Islamic and conventional banks. Although the spread and usefulness of disclosed information are positively associated with banks’ ratings, the quantity dimension is not. Audit quality also significantly influences Islamic banks’ credit ratings compared to their traditional counterparts.Practical implicationsOur evidence offers practical implications for regulators and standards setters in emerging economies to develop more effective disclosure regimes to enhance the impact of the quality of banks’ voluntary disclosures on their credit ratings.Originality/valueOur paper contributes to the existing literature by investigating the effect of the quality of voluntary disclosures on credit ratings along three dimensions: quantity, spread and usefulness of the information. Further, our research contributes to the international accounting literature by investigating the effect of audit quality on the credit ratings of both conventional and Islamic banks in a cross-country setting.

Mismanagement amid resource abundance: Sovereign risk, private sector credit rationing, and economic stagnation in Colombia, 1861‒98

AbstractThis article examines the relationship between national politics, sovereign default, credit rationing, and their effects on fiscal revenues and exports in nineteenth‐century Colombia. Using quantitative and qualitative analysis, it challenges existing narratives on Colombia's lack of sustained nineteenth‐century export‐led development, showing that sovereign default was a political choice with long‐term negative impacts. The study highlights how credit rationing and technological backwardness hindered economic growth. It argues that these policies caused Colombia's economic stagnation, leading to boom‐and‐bust cycles in export crop production. It identifies substantial growth during the liberal era and minimal growth during the regeneración period.

Credit Risk Classification Using Discriminant Analysis for Punjab National Bank Customers

The way investors evaluate credit risk must change as India's financial markets grow more dynamic and the country's economy continues to change and diversify. Credit rating agencies' ratings are a reliable source of information and a conventional indicator of credit risk. Assessing credit risk usually entails speaking with management teams and examining the company's financial data. A purposeful consultation approach forms the basis of the ratings process, which is intended to provide a long-term credit assessment. Understanding the Credit Risk Associated with PNB Customer Classification is the foundation of this study. The study was conducted among 354 PNB customers falling under SEC A1 & A2 category households in the region of Thane. The study aids the bank to take an informed decision on classifying the group of customers with regards to their credit risk. Keywords: Discriminant Analysis, Credit Risk Analysis, Punjab National Bank

An Empirical Analysis of the Effect of Multiple Credit Ratings on Reducing Asset Securitization Financing Costs

This paper delves into the correlation between multiple credit ratings and the financing costs associated with asset securitization, utilizing data spanning from 2012 to 2022 pertaining to credit, corporate asset-backed securities, and asset-backed notes. The research reveals that incorporating multiple credit ratings, as opposed to relying solely on a single rating, favorably impacts the accessibility of more favorable financing costs. Furthermore, the employment of both the "issuer pays" and "investor pays" rating models, as compared to utilizing just the "issuer pays" model, proves to be more effective in mitigating the financing costs of asset securitization products.

ESG rating agencies and investors’ reactions to earnings news

ESG rating agencies and investors’ reactions to earnings news

Quantifying the shift of public export finance from fossil fuels to renewable energy

By providing guarantees and direct lending, public export credit agencies (ECAs) de-risk and thus enable energy projects worldwide. Despite their importance for global greenhouse gas emission pathways, a systematic assessment of ECAs’ role and financing patterns in the low-carbon energy transition is still needed. Using commercial transaction data, here we analyze 921 energy deals backed by ECAs from 31 OECD and non-OECD countries (excluding Canada) between 2013 and 2023. We find that while the share of renewables in global ECA energy commitments rose substantially between 2013 and 2023, ECAs remain heavily involved in the fossil fuel sector, with support varying substantially across technologies, value chain stages, and countries. Portfolio ‘greening’ is primarily driven by members of the E3F climate club, impacting deal financing structures and shifting finance flows towards high-income countries. Our results call for reconsidering ECA mandates and strengthening international climate-related cooperation in export finance.

Informing Voters About Public Finance: Evidence from a Survey Experiment

This study investigates how information about municipal credit ratings influences voters' evaluations of incumbent mayors. Through an original survey experiment, we assess the impact of credit rating downgrades and crime rate increases on citizens' perceptions of mayoral performance. Our findings reveal that information on both issues significantly affects voters' evaluations, with negative news about public finance and crime rates leading to decreased support for incumbents. Notably, the effects of credit downgrades are nearly as substantial as those of crime increases despite public finance being a more complex and less salient issue. Additionally, we observe that voters with varying political knowledge respond similarly to changes in municipal credit ratings, suggesting that such information serves as a useful heuristic in local elections. Our study underscores the importance of accessible financial information in promoting accountability in local governance.

Systemic risk under different clearing methods for multiple derivatives

ABSTRACT The superposition of credit and interest rate derivatives brings liquidity and benefits to financial markets but may shock the system. Various clearing methods, including bilateral and CCP clearing, have emerged since the proposal of a mandatory clearing system. Previous research has focused on single derivatives, neglecting multiple derivatives. Thus, this paper constructs a banking network model incorporating two derivatives and investigates the banking systemic risk under two clearing methods: joint clearing in the same CCP and separate clearing in different CCPs. Results show that the systemic risk of joint clearing in the same CCP is lower than that of separate clearing in different CCPs. Increasing the central clearing ratio increases the systemic risk under separate clearing in different CCPs. The systemic risk is low when the central clearing ratios for credit derivatives and interest rate derivatives are similar under joint clearing in the same CCP approach. In addition, the systemic risk can be significantly underestimated by studying only one type of derivatives in the banking network. This paper not only provides theoretical support for the banking systemic risk under multiple derivatives clearing issues, but also offers strategic suggestions for regulators to clear derivatives reasonably and effectively.

Why consumers hesitate to pay online: Evidence from online transactions

Purchase intention and decision turn out to be the research hotspots in the field of consumer behavior, whereas the reasons for consumer hesitation before purchase have been scarcely investigated. In order to explore the factors that affect consumers’ online purchase hesitation in the context of e-commerce retail, this study uses the theory of perceived risk to analyze how different dimensions of perceived risk dominated by consumer trust affect consumers’ purchase hesitation at the checkout stage, examines the moderating effect of consumers’ online shopping experience on the influencing process, and builds a test model with moderating variables. In this study, the factors for purchase hesitation are empirically analyzed using the methods of literature analysis and logistic regression based on the real transaction data from Taobao. The results show that seller credit rating, representing seller risk, exerts a significant adverse effect on purchase hesitation, whereas the order amount (i.e. financial risk, and price dispersion, representing product risk) positively affects purchase hesitation. The consumer experience plays a moderating role in the above process. In addition, this article further explores the heterogeneous role of buyer’s device, seller’s platform, and buyer’s gender and excludes some of the interfering factors that lead to involuntary hesitation. JEL Classification: M31, M37

Capital market liberalization and corporate ESG rating divergence: a quasi-natural experiment based on the trading system of SSHC

ABSTRACT Utilizing the Shanghai-Shenzhen-Hong Kong Stock Connect trading system as a quasi-natural experiment, we examine the impact of capital market liberalization on corporate ESG rating divergence and its underlying mechanisms through a staggered difference-in-differences (DID) model. Our results demonstrate that capital market liberalization significantly heightens ESG rating divergence among the target firms. Mechanism tests reveal that this effect is primarily driven by increased corporate ESG disclosure and heightened scrutiny from domestic and foreign rating agencies. Heterogeneity analysis indicates that the impact is more significant for firms with lower media attention, reduced market competition, and minimal influence from offshore business philosophies. These findings offer empirical evidence supporting further efforts to promote economic and environmental sustainability.

On the research of multiplier effects in complex production systems

Digital transformation of institutional environment, orientation towards efficiency in the state planning, processes of new industrialisation and import substitution, variability of consumer behaviour, tightening competition in the new geopolitical realities shape the context of modern production systems’ functioning. This necessitates the modification of approaches to measuring their efficiency. The paper’s aim is to model multiplier effects in complex production systems. The concept of production systems’ efficiency constitutes the methodological basis of the research. The methods include systems, comparative, and regression analysis. The evidence is eco nomic and environmental indicators of Russia’s largest metals enterprises taken from the AK&M Rating Agency and the SPARK Database for 2019–2022. The multiplier effects in complex production systems represent an extensive array of effects from technological, social, environmental, digital, and economic activities which impact on businesses’ science and technology development. The obtained regression models of the relationship between environmental and economic efficiencies confirm the presence of the complementary effects. This underlies the original imitation model reflecting the interaction between direct and cross effects from technological, social, environmental, digital, and economic activities of an enterprise. The findings can be practical when formulating strategies for the complex production systems development.

The Role of the Banking System in National Economy: Empirical Evidence from Romania

The aim of this paper is to investigate the role of banking system in Romanian economy, in 2008-2023 period, focusing on the interlinkages between bank deposit, bank credit and interest rates. Additionally, this paper analyzes the financial intermediation of banking system (measured by domestic credit to private sector by banks as % of GDP) in Romanian economy and its contribution to economic growth and development.

Stability of Traveling Wave Solutions in a Credit Rating Migration Free Boundary Problem

Stability of Traveling Wave Solutions in a Credit Rating Migration Free Boundary Problem

Integrating ESG Criteria in Corporate Strategies: Determinants and Implications for Performance

This study explores the integration of Environmental, Social, and Governance (ESG) principles into corporate practices, focusing on the methodologies used for their evaluation and the factors influencing their adoption. Through a qualitative and comparative analysis of European and Saudi Arabian contexts, the research examines how companies align their strategies with ESG requirements in diverse regulatory and cultural environments. Data is drawn from established ESG rating agencies, corporate sustainability reports, and case studies, allowing for a thorough investigation of internal and external evaluation processes and their implications for ESG scores. The study identifies key challenges in ESG implementation, including ambiguities in definitions, resource disparities, sector-specific considerations, and resistance due to cost or unfavorable ratings. It also highlights the role of legal and regulatory frameworks, such as the ESG Disclosure Guidelines introduced by the Saudi Capital Market Authority and global standards like the Global Reporting Initiative (GRI), in shaping corporate ESG practices. Recommendations emphasize the need for standardized evaluation criteria, targeted support for smaller enterprises, and stronger legal frameworks to promote transparency and compliance. The findings contribute to a deeper understanding of ESG dynamics and provide actionable insights for advancing corporate sustainability on a global scale.

Foreign asset expropriation and sovereign bond ratings in the developing world

Abstract Research shows that foreign asset expropriation narrows long-term bond spreads, resulting in lower borrowing costs. However, no empirical studies have investigated the effects of expropriation on sovereign bond ratings. Bondholders and sovereign bond issuers track ratings by credit rating agencies because they impact interest rates and capital costs. Using up to 59 developing countries from 1996 to 2016, we find that expropriation signals lower bond repayment, as asset confiscation blatantly violates international rule of law and discourages foreign direct investment (FDI) inflows, reducing bond ratings. Mediation analysis also indicates that FDI and the rule of law mediate the relationship between expropriation and bond ratings. Further, we distinguish between direct and indirect expropriation and observe that direct expropriation has a greater probability of decreasing ratings. Our research suggests that expropriation holds economic consequences for developing countries, indicating how expropriation negatively affects sovereign bond issuers in the financial and investment community.

Research on the Impact of ESG Performance on the Financing Outcomes of Enterprises

As societal expectations for corporate sustainability and social responsibility continue to rise, ESG (Environmental, Social, and Governance) factors have garnered significant attention from scholars in the fields of economics and finance. Practitioners frequently associate corporate value with the performance of sustainable development-linked bonds. However, it remains unclear whether a positive or negative correlation exists between enterprises' ESG performance and their debt financing costs. Understanding the extent to which ESG performance impacts debt financing costs is crucial for companies considering issuing such bonds. Consequently, this paper analyzes issuance data from sustainable development-linked bonds issued by listed companies on the Shanghai Stock Exchange in China from 2018 to 2022 to investigate the relationship between enterprises' ESG performance and their debt financing costs. The empirical findings indicate that there is a negative correlation between enterprises' ESG performance, and their debt financing costs, with credit ratings serving as an intermediary factor that reduces these costs when accompanied by high ESG ratings.

Does Corporate Governance Influence Firms’ Credit Ratings? Evidence from India

Does Corporate Governance Influence Firms’ Credit Ratings? Evidence from India

Global financial orders and credit rating agencies: disruptions and adaptations

Global financial orders and credit rating agencies: disruptions and adaptations

The Problematic of Banking Governance in Cameroon: What Model for Appropriate Financing?

This article aims to examine the problems that litter banking governance in order to propose a model capable of boosting financing. Our area of investigation is Cameroon. Our methodological approach is qualitative. It lies in carrying out semi-structured interviews with branch heads and customers of the banks surveyed. Our sample concerns three banks with majority national capital operating in Cameroon. The data is processed using the thematic content approach. Our results show that the perverse effects of prudential regulation, information asymmetry, credit rationing, opacity and the tendency to short-term credit are factors that hinder bank financing. Our study proposes the development of a hybrid governance model capable of boosting bank financing.