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Rating Agency (rating + agency)
Selected AbstractsPerverse Effects of an External Ratings-Related Capital Adequacy SystemECONOMIC NOTES, Issue 3 2001Patrick Honohan It has recently been proposed that banks should be allowed to hold less capital against loans to borrowers who have received a favourable rating by an approved external credit assessment institution (ECAI), or rating agency. But a plausible model of rating agency behaviour shows that this strategy could have perverse results, actually increasing the risk of deposit insurance outlays. First, there is an issue of signalling, whereby low-ability borrowers may alter their behaviour so as to secure a lower capital requirement for their borrowing. Second, the establishment of a regulatory cut-off may actually reduce the amount of risk information made available by raters. Besides, the credibility of rating agencies may not be damaged by neglect of the risk of unusual systemic shocks, though it is these that cause the major bank failure costs. (J.E.L.:E53, G21, G33) [source] CONVERTIBLE SECURITIES: A TOLLBOX OF FLEXIBLE FINANCIAL INSTRUMENTS FOR CORPORATE ISSUERSJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2000Trevor Ganshaw During the 1990s, convertible and equity-linked securities emerged as a major source of financing for U.S. corporate issuers. Issuance volume grew steadily throughout the decade and the secondary market value of U.S. convertible securities now exceeds $200 billion. In this overview of the market, the authors discuss the following: (1) the growth of issuance volume in the U.S. equity-linked market; (2) the basic characteristics of convertible securities; (3) convertible debt alternatives; and (4) convertible preferred alternatives. As a result of the proliferation of new convertible structures, corporate issuers are now able to adjust coupon/dividend, conversion premium, and call protection in order to meet their tax, accounting, rating agency, and cost-of-capital objectives. Historically, the convertible new issue market has had a broad variety of issuers, spanning all industry sectors as well as both investment grade and high yield credits. But in the last two years, the most aggressive issuers have been technology-oriented companies, including telecommunications, Internet, hardware, software, and biotechnology concerns. Such technology-related issuers, which are often rated below investment grade and unable to secure straight debt capital, are generally in heavy-spending phases and view convertible bonds as a source of inexpensive financing. At the same time, investment-grade, "old-economy" issuers have continued to use convertible securities selectively, in most cases as cheap "quasi-equity" in the context of mergers and acquisitions, or as a tax-deferred strategy for selling cross-holdings of stock. [source] An Empirical Assessment of Country Risk Ratings and Associated ModelsJOURNAL OF ECONOMIC SURVEYS, Issue 4 2004Suhejla Hoti Abstract., Country risk has become a topic of major concern for the international financial community over the last two decades. The importance of country ratings is underscored by the existence of several major country risk rating agencies, namely the Economist Intelligence Unit, Euromoney, Institutional Investor, International Country Risk Guide, Moody's, Political Risk Services, and Standard and Poor's. These risk rating agencies employ different methods to determine country risk ratings, combining a range of qualitative and quantitative information regarding alternative measures of economic, financial and political risk into associated composite risk ratings. However, the accuracy of any risk rating agency with regard to any or all of these measures is open to question. For this reason, it is necessary to review the literature relating to empirical country risk models according to established statistical and econometric criteria used in estimation, evaluation and forecasting. Such an evaluation permits a critical assessment of the relevance and practicality of the country risk literature. The paper also provides an international comparison of risk ratings for twelve countries from six geographic regions. These ratings are compiled by the International Country Risk Guide, which is the only rating agency to provide detailed and consistent monthly data over an extended period for a large number of countries. The time series data permit a comparative assessment of the international country risk ratings, and highlight the importance of economic, financial and political risk ratings as components of a composite risk rating. [source] Moody's and S&P Ratings: Are They Equivalent?JOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2010Conservative Ratings, Split Rated Bond Yields bond ratings; bond yields; reputation capital We examine the relative impact of Moody's and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody's ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate between the two ratings and assign more weight to the ratings from Moody's, the more conservative rating agency. Moody's becomes more conservative after 1998 and the impact of a superior Moody's rating becomes stronger. Furthermore, the differential impact of the two ratings is more pronounced for the more opaque Rule 144A issues. [source] Bank Loans Versus Bond Finance: Implications for Sovereign Debtors,THE ECONOMIC JOURNAL, Issue 510 2006Misa Tanaka This article analyses the optimal choice between bank loans and bond finance for a sovereign debtor. It shows that if borrowers can be ,publicly monitored' by a rating agency that disseminates the information about their creditworthiness, their choice between bank loans and bond finance is determined by the trade-off between two deadweight costs: the crisis cost of default and the cost of debtor moral hazard. If crisis costs are large, sovereigns use bank loans for short-term financing and bond issuance for long-term financing. I also demonstrate that state contingent debt and IMF intervention can improve welfare. [source] The ownership of ratingsTHE RAND JOURNAL OF ECONOMICS, Issue 2 2009Antoine Faure-Grimaud We identify the optimal contract between a rating agency and a firm and the circumstances under which simple ownership contracts implement this optimal solution. We assume that the decision to obtain a rating is endogenous and the price of a rating is a strategic variable. Clients hiding their ratings can be an equilibrium only if they are ex ante uncertain of their quality and if the hiring decision is not observable. For some distribution functions, a competitive rating market is necessary for this result to obtain. In this context, competition between rating intermediaries will lead to less information in equilibrium. [source] | ||||||||||