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Credit Quality (credit + quality)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Are Fundamentals Priced in the Bond Market?,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2003
Inder K. Khurana
Abstract To date, the discussion of the Lev and Thiagarajan 1993 fundamentals in the prior literature has been exclusively in the context of the stock market. Our study is the first to examine the value-relevance of these fundamentals for default risk. By focusing on the market for new bond issues, we examine the value-relevance of the fundamental score using expected rather than realized returns. Also, by focusing on the bond market we provide a different perspective than that brought by prior studies relying solely on stock prices. We find the fundamentals to be priced in the market for new bond issues as indicators of expected future earnings and to be value-relevant in enabling the market to discern differences in bond credit quality over and above the published bond ratings. [source]

The behavior of emerging market sovereigns' credit default swap premiums and bond yield spreads

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2010
Michael Adler
Abstract We test whether credit risk for Emerging Market Sovereigns is priced equally in the credit default swap (CDS) and bond markets. The parity relationship between CDS premiums and bond yield spreads (BYS), that was tested and largely confirmed in the literature, is mostly rejected. Prices below par can result in positive basis, i.e. CDS premiums that are greater than BYS and vice versa. To adjust for the non-par price, we construct the BYS implied by the term structure of CDS premiums for various maturities. We are able to restore the parity relation and confirm the equivalence of credit risk pricing in the CDS and bond markets for many countries that have bonds with non-par prices and time varying credit quality. We detect non-parity even after the adjustment mainly in countries in Latin America, where the bases are larger than the bid,ask spreads in the market. We also find that the repo rates of bonds decrease around episodes of credit quality deterioration, which helps the basis remain positive. Copyright © 2009 John Wiley & Sons, Ltd. [source]

On the Information Content of Bank Loan-loss Disclosures: A Theory and Evidence from Japan

INTERNATIONAL REVIEW OF FINANCE, Issue 1 2000
Scott Gibson
We develop a model in which banks use loan-loss disclosures to signal private information about the credit quality of their loan portfolios. The cross-sectional predictions generated by the model are shown to help to explain previously documented counterintuitive empirical regularities for US banks. We also take advantage of a recent Japanese regulatory policy shift, which first forbade the reporting of restructured loan balances and then forced full disclosure. This policy shift allows us to address a common difficulty in testing signalling theories, in that we are able to construct a timely proxy for the private information that we allege is being signalled. Consistent with our signalling model, we find that banks taking the largest write-offs turn out later to be the strongest banks, with the fewest restructured loans. [source]

WINDOW DRESSING IN BOND MUTUAL FUNDS

THE JOURNAL OF FINANCIAL RESEARCH, Issue 3 2006
Matthew R. Morey
Abstract We examine portfolio credit quality holding and daily return patterns in a large sample of bond mutual funds and document evidence of window dressing. Using portfolio credit quality holdings data, we find that bond funds on average hold significantly more government bonds during disclosure than nondisclosure, presumably to present a safer portfolio to shareholders. Multiple-index market models estimated with daily returns data corroborate these findings. We detect differences in factor loadings on days surrounding disclosure dates that indicate systematic tilting of the portfolio toward higher quality instruments. [source]

Asymmetric information and credit quality: Evidence from synthetic fixed-rate financing

THE JOURNAL OF FUTURES MARKETS, Issue 6 2006
Betty J. Simkins
In this article the usage of synthetic fixed-rate financing (SFRF) with interest rate swaps (i.e., borrowing short-term and using swaps to hedge interest rate risk, instead of selecting conventional fixed-rate financing) by Fortune 500 and S&P 500 nonfinancial firms is examined over the period 1991 through 1995. Credit ratings, debt issuance, and debt maturities of these firms are monitored through 1999. Strong evidence is found supporting the asymmetric information theory of swap usage as described by S. Titman (1992), even after controlling for industry, credit quality, size effects, and the simultaneity of the capital structure and the interest rate swap usage decision. Consistent with theoretical predictions, SFRF firms are more likely to undergo credit quality upgrades. When limiting the sample to firms where asymmetric information costs are potentially the greatest, the results are even stronger. These findings are important because they document that swaps serve a highly valuable service for firms subject to information asymmetries. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:595,626, 2006 [source]