Impact Of Credit Ratings Research Articles

The Impact of Credit Rating on Innovation in a Two-Sector Evolutionary Model

The Impact of Credit Rating on Innovation in a Two-Sector Evolutionary Model

The Impact of Credit Rating, Ownership and Relationships on Loan Spreads-Taiwan’s Evidence

Using panel data from Taiwan, this paper performed empirical test to explore how the credit status and relationship have impacted loan spreads. Our findings are as follows : (1) Private financial holding companies and private non-financial holding companies grant loan spreads that are significantly lower than those of state-owned banks. Foreign banks grant loan spreads that are significantly higher than those of state-owned banks, and only foreign bank loan spreads are significantly higher than those of state-owned banks when borrowers are considered to be high risk. (2) Banks reduce their loan spreads only for high credit risk borrowers with obvious improvements in credit ratings, but this does not apply to general borrowers even when the credit rating condition is improved. Furthermore, creditor banks unreasonably increase their loan spreads, when the borrowing companies have their credit ratings upgraded. (3) Empirical findings show that the biggest and main creditor banks exhibit significantly lower loan spreads, and were also willing to give high credit risk customers lower lending spreads, which imply that Taiwan’s banks emphasis “banking relationship” while lending. (4) However, robust test over the past decade shows that the banks will raise the lending spreads while the borrower’s risk increasing and reduce the lending spreads while the borrower’s credit rating upgraded.

Going‐concern audit opinions for bankrupt companies – impact of credit rating

PurposeThe purpose of this study is to examine whether credit ratings inform auditors' going‐concern (GC) audit opinions for companies facing imminent bankruptcy.Design/methodology/approachUsing data from BankruptcyData.com the authors identify US publicly‐held, financially‐distressed companies that filed bankruptcy from January 1, 2000 through June 30, 2009. Logistic regression is applied by regressing audit opinion type on select financial, industry, and credit rating data.FindingsResults show that the likelihood of an auditor issuing a GC opinion is associated with the credit rating issued by Standard & Poor's (S&P) preceding the audit report date. In results supporting the idea that the auditor's opinion has informational value, the paper also finds that after issuance of a GC report, S&P's credit rating tends to be downgraded.Research limitations/implicationsWhile the findings indicate observable relationships between audit opinions and credit ratings, the models used in primary analysis cannot determine causality.Originality/valueThis study sheds some light on how credit ratings and audit opinions may be inter‐related in distressed companies, an issue previously not investigated in the literature.

The Impact of Credit Rating and Frequent Refinancing on Firm Value

Rating affects corporate credit costs and leverage choices. Therefore, we develop a corporate valuation model where the choice of leverage is consistent with the implied cost of debt of the rating class. We explicitly model the trigger, the consequences, and the analytical probability of bankruptcy. Further, we develop a financing policy where the firm refinances with a predefined frequency. To conclude, we develop value implications of rating and financing policy which are in line with the trade-off theory in capital structure theory.

CREDIT RATING AND BANK BEHAVIOUR IN INDIA: POSSIBLE IMPLICATIONS OF THE NEW BASEL ACCORD

The paper examines the impact of credit rating on capital adequacy ratios of Indian state-owned banks using quarterly data for the period 1997:1 to 2002:4. To this end, a multinomial logit model with multi credit rating indicators as dependent variable is estimated. The variables that can impinge upon capital adequacy ratio have been used as explanatory variables. Two separate models — one for long-term credit rating and another for short-term credit rating — have been estimated. The paper concludes that, both for short-term as well as for long-term ratings, capital adequacy ratios are an important factor impinging on credit rating of Indian state-owned banks.

Credit Ratings and Capital Structure

This paper examines the impact of credit ratings on capital structure decisions. I find that firms near a change in credit rating issue (retire) annually up to 1.5% less (more) debt relative to equity as a percentage of total assets than firms not near a change in rating, reflecting managers' desire to obtain upgrades and avoid downgrades of the firm's credit rating. These results are shown to be distinct from financial distress concerns. The results are robust to several model specifications and inclusion of control variables. I further show how credit rating effects complement the pecking order and tradeoff capital structure theories, and find that dummy variables, indicating firms are near a change in rating, remain predictive when nested in previous empirical tests of these theories. The results of this paper do not appear to be explained with traditional theories of capital structure, and thus this paper enhances the capital structure decision theoretical and empirical frameworks. To my knowledge, this is the first paper to show that credit ratings directly affect capital structure decision-making.

Credit agency regulation and the impact of credit ratings in the international bond market

The use of credit ratings in financial and other legal documents — both in the USA and Europe —, has led to a situation in which the major rating agencies have become (largely unwilling) participants in the legislative process. This situation has become partly formalized in the US (and is being repeated elsewhere in the European Union, Eastern Europe and Latin America) through the creation of officially ‘recognized’ agencies whose ratings now carry the imprimatur of the Securities and Exchange Commission. The purpose of this paper is to contribute to the debate on the necessity for formal legal status to be sustained in the market for bond credit ratings. In this context, the criteria for a credible rating agency are examined and evidence is provided on one element of the criteria which is under-researched: namely, the impact of the ratings in the market place. The influence of rating agencies in international capital markets is assessed through an analysis of the impact of ratings on the yields of bonds, represented by a comprehensive sample of actively traded debt. The sample contains analysis of ratings introductions on both new and seasoned debt and also examines the impact of ratings revisions. It is concluded that official recognition has no market-based role and it is argued that ratings are used by regulators because of the success of the major agencies in performing their market function.

A re-examination of the impact of credit ratings and economic factors on state bond yields

In this article we re-examine the impact of credit ratings and economic factors on state bond yields using a two-step model. In the first step, we adopt an ordered probit technique to obtain consistent estimates of state bond default risk. In the second step, we estimate state bond risk premiums using a regression analysis with a categorized risk variable obtained from the first step. Similar to Terza (1987) and Hsiao (1983), the model involves a categorized ordinal explanatory (rating) variable. However, our two-step model deals with a case where category thresholds are unknown and dependent on economic factors. The model provides consistent estimates for the effects of ratings and economic factors on state bond yields. Contrary to previous findings, we find that state bond yields are mainly affected by fundamental economic variables.