Credibility of Credit Rating Agencies Name of the Student: Name of the University: Date: Abstract This research paper includes an in depth study of various inter related topics which gives a good understanding of the globally connected financial industry. It explains various aspects of the financial industry and their resulting consequences…
This part of the study suggested why the credibility of credit rating agencies came into the scrutiny. Following that, a detailed study was done regarding the agency costs and its effects on the value of a company. It was seen that, agency cost mostly arises due to the principal agent problem. The principal agent problem is nothing but the situation that is characterized by a conflict of interest between the principal and the agent who are the managers and the shareholder respectively. This conflict of interests leads to agency costs and thereby decreases the value of a firm. Thereafter, the information asymmetry and its implications on the financial services industry have been explained. It has been seen that this factor has led to severe economic downturns in the recent times. One such example was the 2007-08 financial crises where huge extent of information asymmetry existed between the financial institutions and their potential investors which acted as a catalyst triggering the financial crisis. The following sections explained the reason for the credit crunch and its implications in the economy of Qatar. It was reported that Qatar was expected to be resilient to the global financial crisis. Thereafter a final conclusion has been provided. ...
Credit Rating agencies played a critical role by certifying most of the CDO tranches created by financial institutions with investment grade ratings that assured the potential investors about their safety. Furthermore, CDO tranches appealed more to the investors particularly because they offered higher returns compared to the similarly rated corporate bonds. The ratings which were certified to those CDOs appealed to the investors who assumed that the ratings represent a general and vigorous indication of default risks (Griffin & Tang, 2011). However, the rating based approach failed completely in the year 2007-08 with the collapse of the CDO market. In fact the ratings were such inappropriately done that some of the triple-A rated CDO tranches lost 90% of their value and were consequently downgraded as junk (Wojtowicz, 2013). This idea will serve as the ground work of this research. The following sections will explain the involvement of the credit rating agencies in the 2007-08 global financial crisis and comments will be made regarding the credibility of these agencies. These facts will be related to agency costs and the effects of such agency cost on the value of the firm will be explained. Thereafter, another topic that will be described in detail is information asymmetry and its consequences in the financial markets. Finally the reasons for the credit crunch and its implication on Qatar’s economy will be discussed followed with a conclusion. Credit Rating Agencies and the financial crisis The rapid development of the international financial markets over the last two decades would have been impossible without the credit rating agencies. ...
Cite this document
(“Did Credit Rating Agencies do good work Research Paper”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/115086-did-credit-rating-agencies-do-good-work
(Did Credit Rating Agencies Do Good Work Research Paper)
“Did Credit Rating Agencies Do Good Work Research Paper”, n.d. https://studentshare.net/finance-accounting/115086-did-credit-rating-agencies-do-good-work.
Boatright (1999) divides organized finance under three broad categories in life – financial markets, financial services companies and non-financial organizations. Ethical dilemmas in finance surely impact us the most and hence the choice of this topic. An interesting aspect of this dilemma is to understand what is considered ethical and what is not.
Banks were asked to invest only to investment grade bonds that are equivalent to “BBB” or better on the Standard and Poor’s scale. Junk bonds are corporate bonds with highly unfavorable ratings from major rating agencies.
It is today a well-accepted notion that besides making profits and increasing shareholders’ worth, a company is also responsible to all stakeholders or the society at large. Recently, we have seen Wall Street companies such as Goldman Sacks and British Petroleum receiving high credit ratings despite their unethical, destructive behaviors that have brought economic catastrophe and anguish not only to many people but countries.
Small businesses are indispensable for the countries economical and social sustaining. Encouraging small business owners to start new firms and lead the already running firms to success is a solid way to keep the America’s corporate monopoly. The small firms are responsible for more than half of our net product and the provide more than half of our job opportunities.
This paper will seek to provide an account of the potential effects of debt limit/debate on credit rating of United States. It will identify the key agencies and explain the process of credit rating. The research paper will attempt to analyze the impact of recent debates on the United States debt and current legislations.
ces to issuers it rates as the insurers could be improperly pressured to obtain advisory services in return for an enhanced rating(Crockett, Harris, Mishkin & White, 2004).
Other conflict of interest may stem from instances in which credit-rating agencies also avail ancillary
Agencies work in close association with interest groups. The agencies tend to seek support from the public on various programs of their interest. Public opinion plays a crucial role in shifting political power
Profits are fundamental to any bank setting. Therefore, when a bank is evaluating whether to grant a loan or not, it assesses the risk associated with granting that loan. According to Stein (2004), banks frequently ask for a