Credit Ratings Across Asset Classes: A Long-Term Perspective*

Cornaggia, Jess; Cornaggia, Kimberly J.; Hund, John

doi:10.1093/rof/rfx002

Cited by 98 publications

(57 citation statements)

References 39 publications

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“… Regulatory and institutional constraints on large institutional investors including pension funds, insurance companies, and mutual funds generally limit their investment to investment‐grade securities; see Cornaggia, Cornaggia, and Hund () for a discussion of capital requirements and prudent investment guidelines attributable to the NAIC, SEC, ERISA, Basel II, and other institutional guidelines. Speculative‐grade debt (50.5 percent of our sample) is typically held by wealthy retail and unregulated institutional investors (e.g., hedge funds). …”

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confidence: 99%

Managerial Ability and Credit Ratings

Cornaggia

Krishnan

Wang

2017

Contemporary Accting Res

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141

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We test whether credit rating analysts consider managerial ability as a credit risk factor and find that higher‐ability managers obtain more favorable credit ratings. Controlling for past performance, these results suggest that managerial ability is itself a significant credit rating factor. Cross‐sectional analyses indicate that managerial ability is beneficial specifically in firms facing financial or competitive pressure. We find that high‐ability managers mitigate the adverse impact on ratings of other credit risk factors including negative earnings and low interest coverage. Our results contribute to a growing literature documenting economic benefits to hiring and retaining high‐quality management.

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confidence: 99%

Managerial Ability and Credit Ratings

Cornaggia

Krishnan

Wang

2017

Contemporary Accting Res

Self Cite

141

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“…25 However, there is a growing body of evidence that greater competition among CRAs for the rating business of even plain vanilla issuers does lead to some modest catering to issuersbut not the large-scale catering that occurred in rating RMBS. For summaries of this recent literature, see Flynn and Ghent (2018); Jankowitsch et al (2017); Cornaggia et al (2017); Bruno et al (2016); and Cornaggia and Cornaggia (2013). 26 More detail on these points can be found in White (2013White ( , 2016.…”

Section: The Numbers Of Issuersmentioning

confidence: 99%

The Credit Rating Agencies and Their Role in the Financial System

White

2019

The Oxford Handbook of Institutions of International Economic Governance and Market Regulation

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Despite extensive criticism, the major credit rating agencies (CRAs)—Moody’s, Standard & Poor’s, and Fitch—remain central entities in the financial markets of the United States and Europe, especially with respect to bonds and similar financial instruments. This chapter provides a discussion of the role that the CRAs continue to play in the financial system and how and why they play that role. After a brief overview of the CRAs as providers of information that lessens the problems of asymmetric information in lending/borrowing markets, the chapter discusses the expanded use of the CRAs’ ratings in the prudential regulation of financial institutions and the problems that contributed to the financial crisis of 2008. The chapter concludes with a discussion of the likely direction of the CRAs and their regulation.

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“…However, municipal rating migration and consequently the way that previous ratings might affect the current rating have been less widely studied. The second reason for focusing on the analysis of municipal bonds rating is the fact that these are less likely to be updated than corporate bonds, which have more volatile ratings (Cornaggia et al, 2015), thus accentuating the problem relating to the few observations in the off-diagonal matrix migration that makes it difficult to obtain reliable estimates. This leads to the need for parsimonious models to explore higher order dependences without exponentially increasing the number of parameters.…”

Section: Municipal Ratings Datamentioning

confidence: 99%

Parsimonious Higher Order Markov Models for Rating Transitions

Baena-Mirabete

Puig

2017

Journal of the Royal Statistical Society Series A: Statistics in Society

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Summary. We propose several parsimonious models for higher order Markov chains, applied to the study of municipal rating migrations in credit risk. In full parameterized Markov chain models, the number of parameters increases very rapidly as the order in the Markov chain grows and this can yield biased estimates when certain sequences of states are rare. For some processes, as in the case of credit ratings, this problem is accentuated because the transitions between distant states are unlikely (persistent transitions). We introduce the short and long persistence models and compare them with the full parameterized Markov chain, achieving a better fit with a lower number of parameters. Furthermore, downgrade momentum effects are found in the rating process, which are consistent with recent empirical findings.

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Credit Ratings Across Asset Classes: A Long-Term Perspective*

Cited by 98 publications

References 39 publications

Managerial Ability and Credit Ratings

Managerial Ability and Credit Ratings

The Credit Rating Agencies and Their Role in the Financial System

Parsimonious Higher Order Markov Models for Rating Transitions

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