Bibliometric analysis of the regulatory compliance function within the banking sector

[EN] In today's global marketplace, banking organizations have greatly expanded the scope and complexity of their activities and face an ever changing and increasingly complex regulatory environment. Furthermore, due to the consumer credit crisis, several high profile compliance breakdowns, and increased emphasis on consumer protection, the federal and state regulatory agencies, investors, legislators, and the general public are focused on institutions' customer practices and regulatory compliance performance like never before. Moreover, a compliance failure can result in litigation, financial penalties, regulatory constraints, and reputational damage that can strategically affect an organization. Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business. This discipline has become more prominent in a variety of organizations and the trend has even led to the creation of corporate, chief and regulatory compliance officer positions to hire employees whose sole focus is to make sure the organization conforms to stringent, complex legal mandates. In this context, the aim of the present work is to provide with key notions regarding Regulatory Compliance applied to the banking industry, and the key guidelines in order to design and implement a compliance structure and methodology in a financial entity. A subsequent bibliometric analysis will be performed in order to obtain the main aggregated attributes of the existing literature related to banking regulatory compliance. This analysis will be based on the publications obtained from the bibliographic database Web of Science and will include the use of bibliometric tools such as BibExcel, designed to analyse bibliographic data, and Pajek, designed for visualization of large networks. The analysis will contain the most commonly used indicators to analyse the features of the set of documents studied, such as collaboration networks, keywords and co-wording, authorship and geolocation. Finally, an in-depth analysis of the literature that populates the bibliometric analysis will be the basis to detail the ifferent perspectives maintained by the authors publishing in this area. This analysis aims to gather significant conclusions about the treatment adopted towards Regulatory Compliance depending on the geographical area, existing regulation and other social factors.Ibáñez Zapata, A. (2017). BIBLIOMETRIC ANALYSIS OF THE REGULATORY COMPLIANCE FUNCTION WITHIN THE BANKING SECTOR. http://hdl.handle.net/10251/85952.Archivo delegad

When did the stock market start to react less to downgrades by Moody’s, S&P and Fitch?

This paper studies the stock market response to corporate downgrades by S&P, Moody's and Fitch between 1999 and 2011. The empirical evidence shows that cumulative abnormal returns around downgrades become significantly smaller (in absolute value) after the release in 2003 of the Securities and Exchange Commission’s Report on credit rating agencies. The Report addresses concerns related to the agencies and marks a turning point in the attitude of U.S. regulators towards a more critical approach. This has a strong impact on investors that respond by reacting less to downgrades

The Game Changer: Regulatory Reform and Multiple Credit Ratings

This paper examines the change in the regulatory use of multiple credit ratings after the Dodd-Frank Act (Dodd-Frank). We find that post Dodd-Frank reform, firms are less likely to demand a third rating (typically from Fitch) for ratings near the high yield (HY) - investment grade (IG) boundary to support their new corporate bond issues. Third ratings also become less informative post Dodd-Frank, with a much weaker market impact on credit spreads for firms with S&P and Moody’s ratings on opposite sides of the HY-IG rating boundary. We provide new evidence on the effect of Dodd-Frank in curbing corporate borrowers’ strategic use of multiple credit ratings near this boundary

Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs

Using credit ratings as an uncertainty-reducing mechanism, we provide evidence of the beneficial impact of multiple credit ratings on reducing IPO underpricing and filing price revision. We find that the acquisition of multiple ratings in the pre-IPO period mitigates uncertainty more than the acquisition of a single rating. Multi-rated firms also have higher probabilities of survival than those with a single rating, whereas credit rating levels matter only for IPOs with more than one rating. The IPOs that are awarded the first rating on the borderline between investment and non-investment grades are more likely to seek an additional rating

Three essays on the informational effects of credit rating changes on financial markets

Tesis inédita de la Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, leída el 27-01-2020Este capítulo sirve para contextualizar la tesis. Las agencias de rating son compañías que dan una opinión acerca de la solvencia de las empresas y sus activos de deuda a través de los anuncios de rating. Los mercados financieros reaccionarán ante dichos anuncios siempre que aporten información relevante no conocida previamente. El hilo conductor de los capítulos de la tesis es el análisis del impacto de esta información en los mercados financieros y cómo varía ante distintos escenarios. Así, el segundo capítulo de la tesis se concentra en cómo cambia el impacto de esta información cuando se producen cambios regulatorios y eventos que afectan a la credibilidad de las agencias. El tercer capítulo estudia la transmisión de la información de los cambios en el rating de una empresa a otras empresas de su mismo sector. Finalmente, el último capítulo analiza la evolución dinámica de las discrepancias de opinión entre las agencias como una medida de cambios en la opacidad informativa de las empresas y analiza su efecto sobre la respuesta del mercado a los anuncios de cambio de rating...The first chapter contextualises the dissertation. CRA are private companies that provide an opinion about the solvency of firms and their assets through the ratings. Financial markets react to their opinions whenever it contains relevant information that is not previously considered. The common thread of the dissertation is the impact of these opinions in financial markets. The second chapter covers how the impact changes after regulation disclosures and events affecting the reputation of the CRA. Third chapter studies the spillover effect of CRA changes announcements on the rivals of the firm affected by the announcement. The last chapter analyses the dynamic evolution of CRA discrepancies of opinion as a measure of firm information opacity and analyses its impact on financial market reaction after rating change announcements...Fac. de Ciencias Económicas y EmpresarialesTRUEunpu

Essays on credit ratings : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Albany, New Zealand

Credit ratings play an important role as a gatekeeper of capital markets. Firms with higher credit ratings are likely to access the capital markets at a lower cost. Hence, understanding credit rating properties is essential, and this topic is of great importance for academics, regulators, and practitioners. This thesis includes three essays on credit ratings. Traditional issuer-paid credit rating agencies (CRAs hereafter) such as Standard & Poor’s (S&P hereafter), Moody’s and Fitch Ratings (Fitch hereafter) have faced criticisms about the lack of timeliness and accuracy in negative signals due to the conflict of interest in their business model. However, this is not the case for the positive signals. In contrast, investor-paid CRAs, without conflict of interest in their business model, issue more timely and accurate negative signal. The first essay investigates how institutional investors who have advanced trading skills and knowledge respond to credit rating changes issued by two types of CRAs: issuer- and investor-paid CRAs. I find that investors react asymmetrically: they abnormally sell stocks surrounding rating downgrades by investor-paid CRAs, while abnormally buying stocks around rating upgrades by issuer-paid CRAs. In contrast, they have no significant reaction to positive signals from the investor-paid CRA and negative signals from the issuer-paid CRAs. The first essay suggests that, through their trades, institutional investors do capitalize on value-relevant rating information: negative and positive signals provided by investor- and issuer-paid CRAs respectively. More importantly, I further find that a dynamic trading strategy specifically based on rating downgrades by investor-paid CRA and rating upgrades by issuer-paid CRAs generates significant abnormal returns. The second essay focuses on the relationship between politics and credit ratings. Specifically, I investigate whether political similarities between CRAs and bond issuers impact credit ratings. I find that a higher degree of similarity of political affiliation leads to a decrease in timeliness and accuracy of rating downgrades prior to default events. The findings support the notion that CRAs tend to maintain/assign relative rating advantages to politically similar firms via favourable rating activities. I further show that these politically similar firms tend to increase the proportion of political donations to their favoured party following favourable credit ratings. Interestingly, this result is confined to Republican-leaning firms. The results indicate that CRAs successfully use biased credit ratings as an indirect channel of political party support. The second essay thus contributes to the body of knowledge on the importance of political connections in corporate finance as well as CRAs’ rating behaviours. The third essay examines the effect of natural disasters on credit ratings. Natural disasters are exogenous shocks to CRAs’ rating behaviours. I find that firms located in the disaster states (i.e., affected firms) are downgraded by CRAs. I also find the same patterns in changes in stock returns of affected firms. The findings support hypothesis that credit rating changes are driven by firm’s fundamental changes caused by natural disasters. By using instrumental variable (IV) analysis to extract affected firms’ rating changes caused by natural disasters, I further investigate the spill-over effects of natural disasters on rating changes of non-affected firms (i.e., firms are not located in the disaster states). I find that the affected firms’ rating changes positively spill-over to connected firms’ rating changes which are not directly impacted by natural disasters. Connected firms are selected from the same industry, the adjoining states, or supplier-customer relationships with the affected firms. I also find the negative spill-over effects from the affected firms’ rating changes to their competitors’ rating changes. Finally, I replicate the spill-over channels for stock returns, a proxy for market reactions to natural disasters, and find delays in the stock return spill-over. This is significant evidence on CRAs’ sensitivity to natural extreme events