Recent studies examining the effects of a credit rating on firms’ capital structure and adjustment of capital structure to target have focused predominantly on non-financial firms, with virtually no attention given to financial institutions. Using an international sample of 391 rated banks...

We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with...

We compare the stability and timeliness of credit ratings produced by a traditional issuer-paid rating agency (Moody's Investors Service) and a subscriber-paid rater (Rapid Ratings). Moody's ratings exhibit less volatility but are slower to identify default risk. We control for Moody's aversion...

We develop a theoretical model quantifying how firm-level pandemic exposure and sentiment, as informational shocks, affect a firm’s credit spread and default risk. Consistent with model predictions, we find significantly positive impacts on single-name credit default swap (CDS) spreads from...

This paper provides evidence for regulatory arbitrage within the class of asset-backed securities (ABS) based on individual asset holding data of German banks. I find that banks operating with tight regulatory constraints exploit the low risk-sensitivity of rating-contingent capital requirements...

This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral...

This study is motivated by the development of credit-related instruments and signals of stock price movements of large banks during the recent financial crisis. What is common to most of the empirical studies in this field is that they concentrate on modeling the conditional mean. However,...

Two models of default risk are prominent in the financial literature: Merton's structural model and Altman's reduced-form model. The former has the benefit of being responsive, since the probabilities of default can continually be updated with the evolution of firms' asset values. Its main flaw...

The dependency of the individual default behavior of a firm on the state of the credit cycle is widely implemented in credit portfolio models and ultimately reflected in the Basel II one-factor model determining capital requirements. Despite this, macroeconomic variables able to represent this...