Global Rating Agencies Research Articles

해외 주요 ESG 지표를 기반한 국내 10대 기업 ESG 공시내용 비교 연구 (For Sustainability)

The purpose of this study is to compare and analyze the ESG disclosures of 10 major Korean companies and to explore the current status and desirable direction of sustainable management of Korean companies based on the standards of global rating agencies. To this end, the study was conducted through the following three themes.
 First, we identified the main contents of the sustainability reports of the companies and derived the main objectives and key contents of each report. Second, we analyze the ESG management reports of the companies to identify commonalities and differences. Third, in the area of governance (G), the companies showed weaknesses in the area of separation of ownership and management. s the publication of sustainability reports is becoming mandatory for listed companies in Korea, this study is expected to provide useful information for identifying the current status of ESG management of the top 10 companies and deriving improvement measures through a comparative analysis with major global ESG standards. As the publication of sustainability reports is becoming mandatory for listed companies in Korea, this study is expected to provide useful information for identifying the current status of ESG management of the top 10 companies and deriving improvement measures through a comparative analysis with major global ESG standards.

Strategy of Value Averaging for Private Investor on Russian Stock Exchange

The Russian stock exchange revived and began its energetic development in 1991 and it was connected with economy liberalization. Thus we can say that modern history of the Russian stock exchange embraces about 30 years, while in global practice the first stock exchange was born in 1661 in Amsterdam. The most progressive, according to numerous international investors, American stock exchange started functioning in 1791. This short history of the Russian stock exchange development could explain low finance literacy of the population. In spite of fast growth in the number of registered broker’s accounts on the Moscow exchange, a lot of investors in Russia prefer to redistribute a considerable proportion of their resources in foreign currency, gold, real estate. Such fund distribution cannot be explained only by low finance literacy. The Russian stock exchange demonstrates high volatility as, according to global rating agencies, it is emerging. However, stock exchange can be an appealing tool of investment, in case clear and high-quality strategies are used. Within the frames of the article the use of averaged value strategy on the Russian stock exchange is studied, at the same time it is compared with other popular strategies of long-term investment, such as strategy of equal amount purchase, strategy of buying the same number of securities.

Market power and credit rating standards: Global evidence

We examine how the market power of credit rating agencies (CRAs) affects their rating standards. Using a global sample across 26 countries from 1994 to 2019, we find that greater market power of global CRAs, measured by their country-level market shares, is associated with stricter corporate ratings. In addition, the increase in global CRAs' market shares contributes to the tightening trend in their credit ratings worldwide. Exploiting the NRSRO designation of local CRAs in Japan, we find that global CRAs issue more inflated ratings following a decline in their market power. Further, global CRAs' greater market power is associated with timelier ratings, fewer missed defaults, but more false warnings. Collectively, our findings suggest that global rating agencies' market power leads to stricter rating standards and timelier ratings by strengthening the agencies’ reputation concerns, but at the expense of increased false warnings.

Sovereign credit ratings during the COVID-19 pandemic

Using 603 sovereign rating actions by the three leading global rating agencies between January 2020 and March 2021, this paper shows that the severity of sovereign ratings actions is not directly affected by the intensity of the COVID-19 health crisis (proxied by case and mortality rates) but through a mechanism of its negative economic repercussions such as the economic outlook of a country and governments' response to the health crisis. Contrary to expectations, credit rating agencies pursued mostly a business-as-usual approach and reviewed sovereign ratings when they were due for regulatory purposes rather than in response to the rapid developments of the pandemic. Despite their limited reaction to the ongoing pandemic, sovereign rating news from S&P and Moody's still conveyed price-relevant information to the bond markets.

Reconstruction Rating Model of Sovereign Debt by Logical Analysis of Data

Sovereign debt ratings provided by rating agencies measure the solvency of a country, as gauged by a lender or an investor. It is an indication of the risk involved in investment and should be determined correctly and in a well-timed manner. The current system is lacking transparency of rating criteria and mechanism. The present study reconstructs sovereign debt ratings through logical analysis of data (LAD), which is based on the theory of Boolean functions. It organizes groups of countries according to 20 World Bank-defined variables for the period 2012–2015. The Fitch Rating Agency, one of the three big global rating agencies, is used as a case study. An approximate algorithm was crucial in exploring the rating method, in correcting the agency’s errors, and in determining the estimated rating of otherwise unrated countries. The outcome was a decision tree for each year. Each country was assigned a rating. On average, the algorithm reached almost 98% matched ratings in the training set and was verified by 84% in the test set.

Leading from Behind: Sovereign Credit Ratings during COVID-19 Pandemic

Using 311 sovereign rating actions by the three leading global rating agencies between January and August 2020, we show that severity of sovereign ratings actions is not affected by the intensity of the COVID-19 health crisis (proxied by case and mortality rates). We find that economic repercussions of the pandemic such as economic outlook of a country and governments’ response to the health crisis, and not the severity of the pandemic itself, determine the intensity of negative rating actions. Contrary to expectations, credit rating agencies pursued mostly a business-as-usual approach and reviewed sovereign ratings when they were due for regulatory purposes rather than in response to the rapid developments of the pandemic. Despite the disappointing reaction to the ongoing pandemic, sovereign rating news from S&P and Fitch still conveyed price-relevant information to the bond markets.

Short-term competition and long-term convergence between domestic and global rating agencies: Evidence from China.

This article adds to the existing literature on global rating agencies (GRAs, i.e., the S&P, Moody’s, and Fitch) and domestic rating agencies (DRAs). In our research, we introduce the reputation, rating cost and rating accuracy of rating agencies to improve the Hotelling model. According to the theoretical analysis and empirical tests, the results show that the open policy of the Chinese rating industry contributes to higher rating quality in the domestic bond market. This open policy leads to rating convergence between DRAs and GRAs from in the long term.

INTERNAL CREDIT RATING FRAMEWORK FOR REAL ASSET INVESTMENT

Real asset investment, which is assumed to be worthier than traditional assets in regards to exposure to income volatility, has become central to investment portfolios in financial institutions. However, the features of illiquidity and uniqueness involved in an individual real asset deal require private investors to review the full dimensions associated with the transaction structure. Banks and global credit rating agencies assess the quality of products by relying heavily on qualitative research executed by human insights and experiences. Such an approach ensures the comprehensiveness of the review process but it requires excessive resources in time and money. This study presents an internal rating system that instantly screens features of a deal proposal and provides a rating compatible with the global rating standard. The result shows that the outcomes created by this model are mostly clustered from BBB to BB. These findings match the average ratings for real assets, as determined by global rating agencies, which strengthens the practicality of the proposed model.

Foreign ownership and the credibility of national rating agencies: Evidence from Korea

By analyzing bond price reactions to rating changes in Korea, this study adds a new angle to the existing literature on Global Rating Agencies (GRAs, i.e. Moody’s, S&P’s, Fitch) with higher reputation/independence vs. National Rating Agencies (NRAs) with more in-depth local knowledge. Faced with substantial regulatory burdens, GRAs have chosen to operate indirectly in the Korean domestic market by acquiring local NRAs. In our event study, cumulative abnormal returns following downgrades by a wholly domestically owned NRA tend to dominate those from downgrades by two affiliates of GRAs. This casts doubt on the additional information value of reputation capital acquired through GRA ownership as perceived by emerging markets.

The impact of sovereign rating actions on bank ratings in emerging markets

This paper analyses the effects of sovereign rating actions on the credit ratings of banks in emerging markets, using a sample from three global rating agencies across 54 countries for 1999–2009. Despite widespread attention to sovereign ratings and bank ratings, no previous study has investigated the link in this manner. We find that sovereign rating upgrades (downgrades) have strong effects on bank rating upgrades (downgrades). The impact of sovereign watch status on bank rating actions is much weaker and often insignificant. The sensitivity of banks’ ratings to sovereign rating actions is affected by the countries’ economic and financial freedom and by macroeconomic conditions. Ratings of banks with different ownership structures are all influenced strongly by the sovereign rating, with some variation depending on the countries’ characteristics. Emerging market bank ratings are less likely to follow sovereign rating downgrades during the recent financial crisis period.

Unia Europejska – rozpad czy powrót do równowagi makroekonomicznej i finansowej? Rozważania na temat kryzysu w strefie euro z perspektywy europejskiej i światowej

In 2009 the European Union, and in particular the euro zone, slid into a stage of economic recession on account of the spreading global financial crisis, referred to as ‘2008+.’ Considerable developmental problems are being experienced by the group of countries referred to as PIIGS, particularly by Greece, Spain and Italy, which account for nearly 30% of GDP of the euro zone. Due to the tight developmental interdependencies in the European common market, decreased confidence of global investors, and the consequent potentially lowered profitability of bonds of other Mediterranean economies, the bankruptcy of Greece could cause a domino effect. This could mean serious developmental problems for other indebted Mediterranean economies, such as Italy, Spain and Portugal. It could also drag Germany and France (or their banks, that granted tens of billions of euros in loans to Greece) into financial difficulties, and consequently pose a threat to integration processes throughout Europe. The author of the paper anal zes both the causes and effects of the present financial crisis in the euro zone and presents various scenarios for further developments. He also diagnoses the correctional activities undertaken by selected European governments, the EU and international institutions, their first outcomes, the controversies stirred by the opinions of global rating agencies, and the further developmental prospects for the European Union by 2020.

Rating Agency Reputation, the Global Financial Crisis, and the Cost of Debt

Why do foreign firms obtain credit ratings by global rating agencies rather than from their home country's rating agencies even though global raters typically assign lower credit ratings when these foreign firms issue bonds in their home currencies? We find that bonds rated by a global agency decreased yields 11‐14 basis points (bps) when compared to those rated by Japanese rating agencies but, during the 2007‐2009 financial crisis, the yields on these Japanese bonds increased 12‐17 bps, thus fully negating the advantage of obtaining a bond rating from a global rater. This suggests that the reputation of global rating agencies declined during the 2007‐2009 crisis period.

Rating Agency Reputation, the Global Financial Crisis, and the Cost of Debt

It has been a puzzle why foreign firms obtain credit ratings by global rating agencies such as S&P or Moody’s rather than from their home country’s rating agencies even though the global raters typically assign lower credit ratings when these foreign firms issue bonds in their home currencies. In addition, unlike firms in the U.S., foreign firms are not required to obtain ratings from the SEC-sanctioned Nationally Recognized Statistical Rating Agencies (NRSROs). We investigate this puzzle with new 3,525 yen-denominated plain vanilla bonds issued in Japan during 1998-2009 and find that bonds rated by at least one global agency can, on average, result in yields that are 11-14 bps lower than those rated by only Japanese rating agencies. However, during the 2007-2009 financial crisis, Japanese issuers which used S&P and Moody’s actually faced yields that were 14-19 bps higher, thus negating the prior advantage of obtaining a bond rating from a global rating firm, after controlling for other factors. This suggests that the credibility and reputation of the global rating agencies such as S&P and Moody’s have declined following public disclosure of these firms’ problems associated with the subprime mortgage securitization process. In addition to the greater size and longer maturity of the bond issue, we find that Japanese firms with more financial leverage, greater information asymmetry, higher levels of equity ownership by foreigners, poor financial performance, and greater systematic risk are more likely to seek ratings from Moody’s or S&P rather than Japanese rating agencies.

Form versus substance: AAOIFI projects and Islamic fundamentals in the case ofsukuk

PurposeThe purpose of this paper is to investigate the role of standard‐setting bodies and rating agencies which compete for authority in Islamic finance. It does so through a consideration of a recent debate over the permissibility ofsukukfinancing.Design/methodology/approachThe methods used are a combination of archival and bibliographic research, coupled with the author's previous research on Islamic banking and finance.FindingsWhile the debate oversukukhinged on whether the structures areshari'acompliant in form only, not in substance, the role ofsukukin neoliberal reform and the privatization of state resources reveal a deeper potential conflict between Islamic standard‐setting bodies and global neoliberal projects more broadly.Research limitations/implicationsThe implications are significant for other Islamic finance contractual forms and modes of finance. They are also significant in light of the global financial crisis, and the recent debt crisis in Dubai. The research limitations have to do with the fact that this is a fast‐moving field and the global financial crisis has destabilized many institutions – both conventional and Islamic – in structured finance.Originality/valueFew scholars have consideredsukuk's legitimacy, or the competition between Islamic standard‐setting bodies and non‐Islamic global rating agencies.

Reactions of Japanese markets to changes in credit ratings by global and local agencies

We examine data from the mid-1980s to 2003 to investigate whether stock prices set on the Tokyo Stock Exchange for Japanese firms react more strongly to changes in credit ratings of global rating agencies than of local agencies. This offers a strong test of relative influence of the two groups of rating agencies. We hypothesize that global raters will have more influence, but given that the two global agencies, Moody’s and Standard and Poors, are headquartered in the United States, analysis of stocks of Japanese firms listed on US exchanges would confound the results to the extent there is a home bias for raters. We find that global agencies are more influential than the two major local raters, Japan Rating and Investment Information and Japan Credit Rating Agency, for rating downgrades. Thus for credit downgrades, global raters are more influential than local ones even in the local market. Consistent with previous research, we find that upgrades are benign events, and this holds true for global as well as local agencies.