Essays on Credit Ratings
Author
Summary, in English
By using an extensive set of tests and corporate investment decisions indicating various degrees of financial constraints, the first paper provides first-hand evidence of the ability of credit ratings to capture corporate responses consistent with various levels of financial constraints. We find that they outperform six common financial constraints proxies in each of our tests and shocks.
In the second paper, I use an exogenous change in the index inclusion criteria for a large, widely followed bond index, to show that bonds also exhibit an “index” effect following either addition or deletion to the bond index. Furthermore, this exogenous change leads to different types of index effects, allowing me to compare, for the first time, the relative effect of positive (addition) and negative (deletion) changes in a bond index composition. In this comparison, I find that index addition triggers a market reaction twice as large as index deletion, suggesting that investor awareness may be an important channel for bond pricing.
The third paper is the first to provide evidence of rating conservatism for sovereign (i.e. country) credit ratings. I find that a sovereign that received an AA rating in 1993 would only get an A+ twenty years later in spite of maintaining the same economic environment, and this change in conservatism is not justified by an increase in the default rates or by a riskier global environment.
In the final paper, I revisit the method commonly used for measuring time variation (i.e. conservatism) of rating standards over time, and I find that the decrease in the year coefficients (i.e. the measure for conservatism according to prior research) is largely a result of common secular trends in the financial variables included in the model. While my findings do not disprove the existence of conservatism, they suggest that its true magnitude may be significantly lower, and that other empirical methods might be more suitable for its assessment.
Department/s
Publishing year
2018-12-12
Language
English
Publication/Series
Lund Studies in Economics and Management
Issue
144
Full text
Document type
Dissertation
Publisher
Lund University (Media-Tryck)
Topic
- Business Administration
Keywords
- credit ratings
- financial constraints
- bond index
- credit rating standards
- rating conservatism
- time variation in credit ratings
- secular trends
- Credit Rating Agencies
Status
Published
Supervisor
ISBN/ISSN/Other
- ISSN: 1652-8220
- ISBN: 978-91-7753-957-5
- ISBN: 978-91-7753-956-8
Defence date
22 January 2019
Defence time
13:15
Defence place
Holger Crafoord Centre EC2:101
Opponent
- Martin Holmén (Professor)