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Credit Rating Agencies during Credit Crunch

Niazi, Ali | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 53231 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Ebrahimnejad, Ali; Hosseinzadeh, Saeed
  7. Abstract:
  8. This study examines the behaviour of credit rating agencies during the credit crunch and compares it with normal economic conditions. The rating agencies claim that when assessing the credibility of firms over time, they can distinguish between short-term and long-term factors of credit shocks. To evaluate this claim, using Moody's rating data and variables that represent the macroeconomic conditions and financial and business risks, we study whether there is a difference in the tendency of rating agencies to downgrade the rating of firms in the periods of the credit crunch. A credit crunch index is used to determine the occurrence of credit cycles, which is obtained from the time series of commercial and industrial loans of United States banks. The reaction of the stock market to rating changes and the behaviour of investors in conditions affected by the credit and business crisis is also evaluated. Findings show that although the occurrence of credit cycles has increased the credit risk of firms in general, the behaviour of rating agencies is not affected by credit and business cycles. The market also reacts to changes in ratings, especially downgrades, but the severity of this reaction is not sensitive to macroeconomic conditions and the occurrence of credit and business cycles
  9. Keywords:
  10. Credit Risk ; Credit Crunch ; Credit Rating ; Credit Rating Agencies ; Credit Cycles

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