Information Opacity and Fitch Bond Ratings

Livingston, Miles; Zhou, Lei

doi:10.1111/jfir.12110

Cited by 18 publications

(8 citation statements)

References 63 publications

(92 reference statements)

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“…(2014), Safari and Ariff (2015), and Ng and Ariff (2019) show significant contributions by CRAs influencing the markets. Information asymmetry is reduced when firms use the assessment and monitoring expertise of CRAs (Boot, Milbourn, & Schmeits, 2006;He, Wang, & Wei, 2011;Livingston & Zhou, 2016). In a survey conducted using 392 chief financial officers, Graham and Harvey (2001) find 57% of respondents indicate a good credit rating is the second most important factor in determining debt policy while financial flexibility is the first factor.…”

Section: Relevant Literature Reviewmentioning

confidence: 99%

A Multi-Country Study of Factors Affecting Credit Ratings Revisions

Mohamed

2021

IJBS

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This paper reveals findings from extending corporate credit rating studies towards (i) new ratings, affirmation, confirmation, watchlists, and withdrawal, which together represent five out of eight rating types yet to be studied rigorously (there are several papers on upgrades and downgrades); and (ii) identifying key firm-specific factors affecting stock prices around the rating revisions in markets not yet studied. The firmspecific factor effects are measured using the Ordered Probit methodology. Results show that investment and speculation grade issues have the most pronounced effects on price changes. Further findings are: interest-coverage, profitability and leverage ratios, all of which stand out as the most relevant firm-specific factors correlated with stock price changes. An interesting new finding is the discovery of corruption perception scores as a new measure is significantly influencing affirmation, confirmation and downgrade ratings. These new findings are likely to be of interest to investors, corporations wanting to know rating change effects and the external regulators concerned with financial weaknesses/strengths of listed firms facing rating changes.

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Section: Relevant Literature Reviewmentioning

confidence: 99%

A Multi-Country Study of Factors Affecting Credit Ratings Revisions

Mohamed

2021

IJBS

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“…This has prompted us to investigate this further. 21 Fitch has traditionally held a smaller market share relative to Moody's and S&P (Becker & Milbourn, 2011;Livingston & Zhou, 2016). This may have influenced both their rating behavior (Beatty et al, 2019;Hirth, 2014) and investor reaction.…”

Section: The Case Of Fitch Ratingsmentioning

confidence: 99%

Asymmetric trading responses to credit rating announcements from issuer‐ versus investor‐paid rating agencies

Nguyen

Xuan

Molchanov

et al. 2023

Business Fin & Account

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The credit rating industry has traditionally followed the “issuer‐pays” principle. Issuer‐paid credit rating agencies (CRAs) have faced criticism regarding their untimely release of negative rating adjustments, which is attributed to a conflict of interests in their business model. An alternative model based on the “investor‐pays” principle is arguably less subject to the conflict of interest problem. We examine how investors respond to changes in credit ratings issued by these two types of CRAs. We find that investors react asymmetrically: They abnormally sell equity stakes around rating downgrades by investor‐paid CRAs, while abnormally buying around rating upgrades by issuer‐paid CRAs. Our study suggests that, through their trades, investors capitalize on value‐relevant information provided by both types of CRAs, and a dynamic trading strategy taking advantage of this information generates significant abnormal returns.

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“…Empirically, we measure information opacity follow a similar method as in Livingston and Zhou (2016) by constructing an opacity rank based on three opacity proxies: analyst forecast dispersion, analyst forecast error, and stock volatility 10 . For each year, we first rank each firm for all three opaqueness measures.…”

Section: Heterogeneous Effectsmentioning

confidence: 99%

Network connections within committees and board governance effectiveness

Hong

2021

Corporate Governance

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Research Question/Issue: The paper studies how network connections within board committees affect corporate governance effectiveness. Research Findings/Insights: Using detailed director biographical data of a large U.S. sample, we find that firms with more connections among compensation committee members exhibit less CEO excess compensation, and firms with more connections among audit committee members exhibit less earnings management. These positive effects of connections on corporate governance are more pronounced when a committee has shorter joint tenure, when the firm's information is more opaque, when the firm's CEO is more powerful, or when external governance is weaker. To address endogeneity concerns, we further exploit exogenous departures of directors and continue to find that connections among committee members lead to more effective governance. Theoretical/Academic Implications: Our paper's findings suggest that network connections among directors improve governance effectiveness. This relation is consistent with sociology views that social connections foster information sharing, opinion exchange, and coordination. Our paper complements previous studies on board connections that mainly focus on whether connections between boards and CEOs impair board monitoring. Our paper also shows that director network connection is an important board characteristic. Practitioner/Policy Implications: Our paper's results lend support to the perspective that director network connections can be valuable to firms. Network connection with other board members is an important part of a director's human capital. Therefore, hiring new directors that are connected to the incumbent members can be beneficial to firms at least in certain settings.

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Information Opacity and Fitch Bond Ratings

Cited by 18 publications

References 63 publications

A Multi-Country Study of Factors Affecting Credit Ratings Revisions

A Multi-Country Study of Factors Affecting Credit Ratings Revisions

Asymmetric trading responses to credit rating announcements from issuer‐ versus investor‐paid rating agencies

Network connections within committees and board governance effectiveness

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