In almost every financial market crisis we can observe widening credit spreads, especially in the last years during the subprime and sovereign debt crisis. But what exactly drives the credit spread? This paper will outline static components, i.e. default risk, liquidity, risk and the relative...

There has been heated debate regarding credit-rating agencies' (CRAs') reporting accuracy of corporate credit ratings, which is essential for investors because they rely on those crediting ratings to make investment decisions. We estimate the reporting accuracy using the data on corporate...

We develop a four-factor model intended to capture size, value, and credit rating transition patterns in excess returns for a panel of predominantly mid- and large-cap entities. Using credit transition matrices and rating histories from 48 US issuers, we provide evidence to support a...

In this paper, we study the optimal credit rating system in an economy where agents need to borrow and have incentives to renege on debt repayments. We show that credit exclusion creates soft collateral in the form of a borrower's reputation. Compared with individual lending, bank lending...

While credit rating agencies are of central importance to credit markets, it is still unclear how credit ratings decisions are being made. Are credit rating quantitatively hard-wired? Or, do ratings represent a more holistic approach to the evaluation of creditworthiness? I evaluate the...

It is well known that credit ratings agencies (CRAs) are a key component of financial markets. But it is less well understood that its decisions reach far beyond the financial system boundaries, and have a direct impact in our daily lives. But, how is that so? If CRAs are important in the...