Existing research links CEO personality traits to a number of corporate decisions including overinvestment, external acquisitions, and earnings management. These findings raise the question of whether counterparties distinguish between differences in individual CEO behavior, and how they respond to it. We focus on two key counterparties – auditors and credit rating agencies – and examine whethe...

Despite mounting evidence to the contrary, credit migration matrices, used in many credit risk and pricing applications, are typically assumed to be generated by a simple Markov process. Based on empirical evidence we propose a parsimonious model that is a mixture of (two) Markov chains, where the mixing is on the speed of movement among credit ratings. We estimate this model using credit ratin...

This is one of several releases that the Securities and Exchange Commission (‘‘Commission’’) will be considering relating to the use of credit ratings in our rules and forms. In this release, we are proposing a new rule as well as rule and form amendments under the Securities Act of 1933 and the Investment Company Act of 1940 to implement provisions of the DoddFrank Wall Street Reform and Consu...

Credit risk management is becoming more and more important in recent years. When a company deals with a financial problem, it may not be able to fulfill its financial obligations, which can cause direct and indirect financial losses to shareholders, creditors, investors and other people in the community. Advanced credit risk models that are based on market value include improving credit quality...

We develop a rational expectations model in which the issuer of a nancial instrument purchases credit ratings(s) in order to provide useful information to investors and attract investor demand. We examine the nature of a credit-rating equilibrium in a staged game in which an issuer purchases rating(s) sequentially and then decides which ratings to disclose. Our analysis emphasizes the importanc...

Several factors comprise the credit ratings analysts publicly report. While academics have extensively studied the quantitative models credit analysts employ, far less is known about the qualitative adjustments analysts make to their models’ outputs (“soft adjustments”). We examine whether and how credit analysts employ credit-relevant qualitative disclosure in making their credit risk assessme...

Many blame the recent financial market turmoil on ratings agencies. We develop an equilibrium model of the market for ratings and use it to examine popular arguments about the origins of and cures for ratings inflation. In the model, asset issuers can shop for ratings – observe multiple ratings and disclose only the most favorable – before auctioning their assets. When assets are simple, agenci...

Moody's endorses the Basel Committee's proposal to use banks' internal risk assessments to re®ne the Basel Accord's risk weights on bank assets and commitments. External risk assessments, such as Moody's credit ratings, will likely play a supporting role as direct inputs into banks' internal rating systems and as tools for benchmarking and validating those systems. However, the widespread use o...

This dissertation studies the issues on information and the bond market. The first essay examines the incentives of certified credit rating agencies to issue credit watches. The second essay studies how quality of private information of investors affects bond yield spreads. The third essay studies whether more accrual-based income smoothing is related with better or worse bond ratings. Essay 1:...