Do bank stress tests reduce the reliance on credit rating downgrades?

2020 ◽  
Author(s):  
Koen Inghelbrecht ◽  
Jessie Vantieghem
Keyword(s):  
Credit Rating ◽  
Stress Tests ◽  
Rating Downgrades

Low oil prices set to accelerate Gulf subsidy reform

2015 ◽  
Keyword(s):  
Oil And Gas ◽  
Credit Rating ◽  
Government Expenditure ◽  
Oil Prices ◽  
Sharp Drop ◽  
Capital Projects ◽  
Content Type ◽  
Near Term ◽  
Rating Downgrades ◽  
Personal Incomes

Significance The sharp drop in oil prices to around 50 dollars, half their average level last year, has forced a serious fiscal rethink among the six Gulf Cooperation Council (GCC) states, who are heavily dependent on oil and gas exports. Following a decade of high oil prices, and a widespread assumption that prices would remain above 100 dollars, government expenditure has become bloated, with generous salaries and subsidies, and ambitious capital projects. Impacts Companies competing for government tenders are likely to face greater scrutiny over costs. Consumer-facing companies will be less seriously affected, given the likely limited impact on personal incomes in the near term. Bahrain and Oman could suffer credit rating downgrades. Stability in other GCC states is unlikely to be affected due to the protection of citizen benefits. Saudi Arabia will provide Bahrain with financial support if the fiscal squeeze weakens stability there.

Tax Loss Carrybacks as Firm Fiscal Stimulus: A Tale of Two Recessions

2021 ◽  
Author(s):  
Christine Dobridge
Keyword(s):  
Credit Rating ◽  
Cash Holdings ◽  
Financial Health ◽  
Fiscal Stimulus ◽  
Bankruptcy Risk ◽  
Macroeconomic Conditions ◽  
Financial Conditions ◽  
Tax Refunds ◽  
Tax Loss ◽  
Rating Downgrades

This paper studies effects of the five-year net operating loss carryback enacted near the end of the 2001 and 2007-09 U.S. recessions-a policy that gave firms larger U.S. federal tax refunds as a fiscal stimulus measure. Following the end of the 2001 recession, I find the policy had little effect on firm financial conditions and I find that firms allocated $0.40 of every refund dollar to investment in that period. In contrast, the policy improved firm financial conditions following the 2007-09 recession, reducing bankruptcy risk and the probability of future credit-rating downgrades. In this period, I find that firms initially used the refunds to increase cash holdings before paying down debt in the following year. These results highlight the importance of considering macroeconomic conditions when studying firm uses of tax-related cash flow and the related effects on firm financial health.

The impact of market sectors and rating agencies on credit ratings: global evidence

2019 ◽  
Vol 20 (5) ◽  
pp. 389-410
Author(s):  
Kerstin Lopatta ◽  
Magdalena Tchikov ◽  
Finn Marten Körner
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Content Type ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Investment Grade ◽  
The Impact ◽  
Rating Downgrades

Purpose A credit rating, as a single indicator on one consistent scale, is designed as an objective and comparable measure within a credit rating agency (CRA). While research focuses mainly on the comparability of ratings between agencies, this paper additionally questions empirically how CRAs meet their promise of providing a consistent assessment of credit risk for issuers within and between market segments of the same agency. Design/methodology/approach Exhaustive and robust regression analyses are run to assess the impact of market sectors and rating agencies on credit ratings. The examinations consider the rating level, as well as rating downgrades as a further measure of empirical credit risk. Data stems from a large global sample of Bloomberg ratings from 11 market sectors for the period 2010-2018. Findings The analyses show differing effects of sectors and agencies on issuer ratings and downgrade probabilities. Empirical results on credit ratings and rating downgrades can then be attributed to investment grade and non-investment grade ratings. Originality/value The paper contributes to current finance research and practice by examining the credit rating differences between sectors and agencies and providing assistance to investors and other stakeholders, as well as researchers, how issuers’ sector and rating agency affiliations act as relative metrics.

Effects of credit rating changes on capital structure of Latin American firms

2019 ◽  
Vol 13 ◽  
pp. e154005
Author(s):  
Thiago Botta Paschoal ◽  
Matheus da Costa Gomes ◽  
Mauricio Ribeiro do Valle
Keyword(s):  
Capital Structure ◽  
Latin American ◽  
Method Of Moments ◽  
Credit Rating ◽  
Necessary Conditions ◽  
Panel Data Analysis ◽  
Generalized Method Of Moments ◽  
Speed Of Adjustment ◽  
Rating Changes ◽  
Rating Downgrades

This study investigates whether non-financial Latin American firms adjust their capital structure in order to maintain certain rating levels. The credit rating-capital structure (CR-CS) hypothesis suggests that firms assume less debt after rating downgrades, aiming to retrieve necessary conditions to restore a better rating. Through panel data analysis for the 2000-2014 period and by using the generalized method of moments (GMM), we show that a rating downgrade does not accelerate the speed of adjustment to the target, indicating that firms do not target minimum rating levels, as predicted by the CR-CS hypothesis. Although, rating changes are related to firms’ capital structure, we conclude that Latin American firms do not adjust their capital structure to maintain certain rating levels.

Do Firms Target Credit Ratings or Leverage Levels?

2009 ◽  
Vol 44 (6) ◽  
pp. 1323-1344 ◽  
Author(s):  
Darren J. Kisgen
Keyword(s):  
Capital Structure ◽  
Empirical Model ◽  
Credit Rating ◽  
Credit Ratings ◽  
Structure Activity ◽  
Commercial Paper ◽  
Net Equity ◽  
Target Leverage ◽  
Rating Downgrades

AbstractFirms reduce leverage following credit rating downgrades. In the year following a downgrade, downgraded firms issue approximately 1.5%–2.0% less net debt relative to net equity as a percentage of assets compared to other firms. This relationship persists within an empirical model of target leverage behavior. The effect of a downgrade is larger at downgrades to a speculative grade rating and if commercial paper access is affected. In particular, firms downgraded to speculative are about twice as likely to reduce debt as other firms. Rating upgrades do not affect subsequent capital structure activity, suggesting that firms target minimum rating levels.

scholarly journals Do Credit Default Swaps Mitigate the Impact of Credit Rating Downgrades?*

2018 ◽  
Vol 23 (3) ◽  
pp. 471-511 ◽  
Author(s):  
Sudheer Chava ◽  
Rohan Ganduri ◽  
Chayawat Ornthanalai
Keyword(s):  
Credit Rating ◽  
Credit Default Swaps ◽  
Credit Default ◽  
The Impact ◽  
Rating Downgrades

The Effect of Credit Rating Downgrades and Customer-supplier Relationships

2019 ◽  
Author(s):  
Dallin Alldredge ◽  
Yinfei Chen ◽  
Steve Liu ◽  
Vicky (Lan) Luo
Keyword(s):  
Credit Rating ◽  
Supplier Relationships ◽  
Rating Downgrades

EM corporate debt is key risk to global markets

2015 ◽  
Keyword(s):  
Financial Stability ◽  
Credit Rating ◽  
Economic Conditions ◽  
Global Markets ◽  
Corporate Debt ◽  
Bond Markets ◽  
Content Type ◽  
Default Rates ◽  
Debt Market ◽  
Rating Downgrades

Significance The IMF's warning, contained in its Global Financial Stability Report (GFSR), shows concerns for the vulnerabilities posed by the build-up of EM corporate debt, especially dollar-denominated debt, which is at risk from local currencies' depreciation, the commodity sell-off and the deterioration in economic conditions across much of the developing world. Impacts EM bond markets will be more resilient than foreign exchange and equity markets, which are suffering from large sell-offs. Although EM corporate debt market-default rates remain low compared to the 1990s, credit rating downgrades will outweigh upgrades. Emerging Asia will remain the most resilient EM corporate debt market thanks to the stronger credit fundamentals of its corporates.

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