The Impact of Credit Rating on Firms' Debt Maturity and Ownership Decisions PDF Download
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Author: Tong Jiao
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Tong Jiao
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Christian Kronwald
Publisher: GRIN Verlag
ISBN: 3640575571
Category : Business & Economics
Languages : en
Pages : 39
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Book Description
Seminar paper from the year 2009 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, University of Hohenheim (Lehrstuhl für Bankwirtschaft und Finanzdienstleistungen), language: English, abstract: The question about capital structure is one of the most important issues which the management of a company faces in implementing their daily business. Therefore, the question of which factors affect capital structure decisions attracts high attention in the past and recent literature on capital structure. There are many papers providing valuable insights into capital structure choices, starting with the paper of Modigliani and Miller (1958). The MM-Theorem is generally considered a purely theoretical result since it ignores important factors in the capital structure decision like bank-ruptcy costs, taxes, agency costs and information asymmetry. Based on this paper many other theories which consider factors neglected by Modigliani and Miller have been evolved. Two major theories are the Tradeoff- and the Pecking-Order-Theory. The former loosens assumptions stated in the MM-Theorem by including bankruptcy costs and taxes while the latter introduces information asymmetry into the capital structure discussion. Chapter 2.1 will give a brief overview of these theories. For complexity reasons these models cannot capture all relevant factors affecting the capital structure policy of a company. However, all these theories disregard one cru-cial factor which plays an important role on capital markets all over the world. The significance of Credit Ratings is gradually increasing, and it is doing so in many re-spects. This paper focuses on the Credit Rating-Capital Structure-Hypotheses (CRCS) developed by Darren J. Kisgen as a modern approach to the capital structure discussion. The hypothesis argues that credit ratings have an impact on capital struc-ture decisions due to discrete costs (benefits) associated with a rating change. Firstly, reasons why credit ratings are material for capital structure decisions will be out-lined. Then, situations in which credit rating effects play a role will be examined. For this issue it is very important to show how it can be measured whether a firm is con-cerned about a rating change or not. Afterwards the CR-CS will be empirically tested. The traditional theories don’t explain the results obtained in these tests. Therefore credit rating effects will be combined with factors discussed in the Tradeoff- and Pecking-Order-Theory. In subsequent empirical tests credit rating factors will be integrated into previous capital structure test to show that the results of the CR-CS tests remain statistically significant...
Author: Blaise Giroud
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This thesis examines to what extent the use of credit ratings-dependent rules in prudential regulation affect capital structure decisions at rated firms. The thesis shows that, though primarily aimed at investors to curb excessive risk taking, these rules have normative implications for issuers as well. More specifically, because these rules de facto negatively impact availability and cost of debt funding at specific rating thresholds, borrowers tend to restrict their reliance on debt when near these thresholds. By contrasting American and European practices, the thesis reveals that this effect is more pronounced in regulatory environments that heavily rely on credit ratings in their legislation (as in the United States) than in other cases where the reliance is lower (as in Europe). Given the unnecessary burden these rules impose on firms' financial flexibility, government officials and regulative bodies should carefully consider alternative ways of exerting their prudential oversight, provided they are concerned with market efficiency.
Author: Fabio Schiantarelli
Publisher: World Bank Publications
ISBN:
Category : Corporate debt
Languages : en
Pages : 44
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Author: Yamini Agarwal
Publisher: John Wiley & Sons
ISBN: 111820316X
Category : Business & Economics
Languages : en
Pages : 208
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Inside the risk management and corporate governance issues behind capital structure decisions Practical ways of determining capital structures have always been mysterious and riddled with risks and uncertainties. Dynamic paradigm shifts and the multi-dimensional operations of firms further complicate the situation. Financial leaders are under constant pressure to outdo their competitors, but how to do so is not always clear. Capital Structure Decisions offers an introduction to corporate finance, and provides valuable insights into the decision-making processes that face the CEOs and CFOs of organizations in dynamic multi-objective environments. Exploring the various models and techniques used to understand the capital structure of an organization, as well as the products and means available for financing these structures, the book covers how to develop a goal programming model to enable organization leaders to make better capital structure decisions. Incorporating international case studies to explain various financial models and to illustrate ways that capital structure choices determine their success, Capital Structure Decisions looks at existing models and the development of a new goal-programming model for capital structures that is capable of handling multiple objectives, with an emphasis throughout on mitigating risk. Helps financial leaders understand corporate finance and the decision-making processes involved in understanding and developing capital structure Includes case studies from around the world that explain key financial models Emphasizes ways to minimize risk when it comes to working with capital structures There are a number of criteria that financial leaders need to consider before making any major capital investment decision. Capital Structure Decisions analyzes the various risk management and corporate governance issues to be considered by any diligent CEO/CFO before approving a project.
Author: Wolfgang Drobetz
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Changes in corporate credit ratings affect subsequent capital structure decisions. The results for listed companies in our U.S. sample support Kisgen's (2006, 2009) credit rating-capital structure hypothesis. However, applying a system GMM system approach, the implications of this hypothesis are weakened by our estimates for the speed of capital structure adjustment after credit rating changes. In contrast, publicly listed companies in our German sample are widely independent from changes in their creditworthiness. Similarly, changes in the capital structure and financing choices of high creditworthy privately-held firms in Germany are more or less independent from credit rating changes. At speculative grade rating levels, however, these firms implement financing activities that strengthen their capital structure subsequent to a rating downgrade. Our findings for the speed of adjustment support these results. We find some contradictory patterns for credit rating upgrades at lower rating levels. We conclude that the close relationship of German firms, whether publicly listed or not, to their banks helps them to mitigate else substantial effects of adverse changes in their creditworthiness.
Author: Herwig M. Langohr
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 662
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This title is a guide to ratings, the ratings industry, and the mechanics and economics of obtaining a rating. It sheds light on the role that the agencies play in the international financial markets.
Author: Darren J. Kisgen
Publisher:
ISBN:
Category : Business enterprises
Languages : en
Pages : 114
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Author: Blaise Ganguin
Publisher: McGraw Hill Professional
ISBN: 0071454586
Category : Business & Economics
Languages : en
Pages : 462
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An up-to-date, accurate framework for credit analysis and decision making, from the experts at Standard & Poor's "In a world of increasing financial complexity and shorter time frames in which to assess the wealth or dearth of information, this book provides an invaluable and easily accessible guide of critical building blocks of credit analysis to all credit professionals." --Apea Koranteng, Global Head, Structured Capital Markets, ABN AMRO "The authors do a fine job of combining latest credit risk management theory and techniques with real-life examples and practical application. Whether a seasoned credit expert or a new student of credit, this is a must read book . . . a critical part of anyone's risk management library." --Mark T. Williams, Boston University, Finance and Economics Department "At a time when credit risk is managed in a way more and more akin to market risk, Fundamentals of Corporate Credit Analysis provides well-needed support, not only for credit analysts but also for practitioners, portfolio managers, CDO originators, and others who need to keep track of the creditworthiness of their fixed-income investments." --Alain Canac, Chief Risk Officer, CDC IXIS Fundamentals of Corporate Credit Analysis provides professionals with the knowledge they need to systematically determine the operating and financial strength of a specific borrower, understand credit risks inherent in a wide range of corporate debt instruments, and then rank the default risk of that borrower. Focusing on fundamental credit risk, cash flow modeling, debt structure analysis, and other important issues, and including separate chapters on country risks, industry risks, business risks, financial risks, and management, it guides the reader through every step of traditional fundamental credit analysis. In a dynamic corporate environment, credit analysts cannot rely solely on financial statistical analysis, credit prediction models, or bond and stock price movements. Instead, a corporate credit analysis must supply loan providers and investors with more information and detail than ever before. On top of its traditional objective of assessing a firm's capacity and willingness to pay its financial obligations in a timely manner, a worthy credit analysis is now expected to assess recovery prospects of specific financial obligations should a firm become insolvent. Fundamentals of Corporate Credit Analysis provides practitioners with the knowledge and tools they need to address these changing requirements. Drawing on the unmatched global resources and capabilities of Standard & Poor's, this valuable book organizes its guidelines into three distinct components: Part I: Corporate Credit Risk helps analysts identify all the essential risks related to a particular firm, and measure the firm through both a financial forecast and benchmarking with peers Part II: Credit Risk of Debt Instruments explains the impact of debt instruments and debt structures on a firm's recovery prospects should it become insolvent Part III: Measuring Credit Risk presents a scoring system to assess the capacity and willingness of a firm to repay its debt in a timely fashion and to evaluate recovery prospects in the event of financial distress In addition, a fourth component--Cases in Credit Analysis--examines seven real-life studies to provide examples of the book's theory and procedures in practice. Senior Standard & Poor's analysts explore diverse cases ranging from North and South America to Europe and the Pacific Rim, on topics covering mergers (AT&T-Comcast, MGM-Mirage, Kellogg-Keebler), foreign ownership in a merger (Air New Zealand-Ansett-Singapore Airlines), sovereign issues (Repsol-YPF), peer comparisons (U.S. forestry), and recovery analysis (Yell LBO). Industry "Keys to Success" are identified and analyzed in each case, along with an explanation on how to interpret performance and come to a credit decision. While it is still true that ultimate credit decisions are highly subjective in nature, methodologies and thought processes can be repeatable from case to case. Fundamentals of Corporate Credit Analysis provides analysts with the knowledge and tools they need to systematically analyze a company, identify and analyze the most important factors in determining its creditworthiness, and ensure that more "science" than "art" is used in making the final credit decision.
Author: Fabio Schiantarelli
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
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Book Description
Is long-term debt better than short-term debt in its effect on firm performance? The answer appears to be yes for privately owned companies in India.Economic policymakers traditionally hold the view that, because of imperfections in capital markets, a shortage of long-term finance acts as a barrier to industrial performance and growth. Long-term finance is thought to allow firms to invest in more productive technologies, even when they do not produce immediate payoffs, without the fear of premature liquidation. As a result, special state-supported term-lending institutions have been established, especially in developing countries.But some believe that short-term finance may offer better incentives because it allows suppliers of finance to monitor and control firms more effectively, thus improving the firms' performance.Schiantarelli and Srivastava empirically investigate the determinants and consequences of the term structure of debt. Using a rich panel of data on privately owned companies in India, they also examine the influence of debt maturity structures on those firms` performance, especially on productivity.The results are not conclusive, but seem to support conventional beliefs about the importance of long-term finance to firm performance. Heavy leveraging, however, has a strong negative impact on productivity.They base their econometric evidence on estimates of a maturity equation and of a production function augmented by financial variables.The data on which these results are based have been generated by a financial system in which there is little competition, in which state-owned financial institutions are not guided by the profit motive and have no control over interest rates, so one cannot say whether short term finance would have been more beneficial in a less regulated system.Moreover, by the end of the 1980s, the capital base of India's government-owned financial institutions had been severely eroded and they carried a heavy burden of nonperforming assets. This means that the benefits of long term finance must be weighed against the costs.This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - was prepared for the conference Firm Finance: Theory and Evidence held on June 14, 1996. The study was funded by the Bank`s Research Support Budget under research project Term Finance (RPO 679-62).
