Rating agencies and the fallout of the 2007-2008 financial crisis PDF
Preview Rating agencies and the fallout of the 2007-2008 financial crisis
Petra Lieven Rating Agencies and the Fallout of the 2007-2008 Financial Crisis wepotkhpowkrpüchoanalyse und Analytische Psychologie Petra Lieven Rating Agencies and the Fallout of the 2007-2008 Financial Crisis This book examines rating agencies role in the recent financial crisis and proposed reforms. It summarizes the key causes that have led to the crisis, analyzes points of criticism and accusations leveled at rating agencies, and discusses proposals towards regulatory reform. The author takes rating agencies position regarding these accusa- tions and proposals into account. In contrast to other studies focusing only on US and EU regulatory issues, this study also considers whether responses from other countries could deliver a feasible path in adopting new regulations. The author examines in a cross-country qualitative manner stakeholder perceptions with respect to rating agencies. Based on empirical findings the study discusses how perceived or revealed shortcomings can be solved. The Author Petra Lieven holds a Master of Business Administration degree from the University of Wales (Cardiff) and received her doctoral degree from the Cyprus International University (Nicosia). She is head of accounting/controlling at a German venture capital company. www.peterlang.com Rating Agencies and the Fallout of the 2007-2008 Financial Crisis Petra Lieven Rating Agencies and the Fallout of the 2007-2008 Financial Crisis Bibliographic Information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data is available in the internet at http://dnb.d-nb.de. Library of Congress Cataloging-in-Publication Data Names: Lieven, Petra, 1962- author. Title: Rating agencies and the fallout of the 2007-2008 financial crisis / Petra Lieven. Description: Frankfurt am Main ; New York : Peter Lang, [2016] Identifiers: LCCN 2016034639 | ISBN 9783631676219 Subjects: LCSH: Rating agencies (Finance) | Global Financial Crisis, 2008-2009. | Financial crises--Government policy. Classification: LCC HG3751.5 .L54 2016 | DDC 330.9/0511--dc23 LC record available at https://lccn.loc.gov/2016034639 ISBN 978-3-631-67621-9 (Print) E-ISBN 978-3-653-06966-2 (E-PDF) E-ISBN 978-3-631-69636-1 (EPUB) E-ISBN 978-3-631-69637-8 (MOBI) DOI 10.3726/ 978-3-653-06966-2 © Peter Lang GmbH Internationaler Verlag der Wissenschaften Frankfurt am Main 2016 All rights reserved. PL Academic Research is an Imprint of Peter Lang GmbH. Peter Lang – Frankfurt am Main ∙ Bern ∙ Bruxelles ∙ New York ∙ Oxford ∙ Warszawa ∙ Wien All parts of this publication are protected by copyright. Any utilisation outside the strict limits of the copyright law, without the permission of the publisher, is forbidden and liable to prosecution. This applies in particular to reproductions, translations, microfilming, and storage and processing in electronic retrieval systems. This publication has been peer reviewed. www.peterlang.com Acknowledgements I would like to express my gratitude to all those who provided me with the op- portunity to complete this research. First, I would like to thank the participants who shared their time and thoughts with me; without them, this research could not have been conducted. I am deeply grateful to my supervisor Prof. Dr. Ahmet Aker, from the Cyprus International University, for his continuous support of my research. His valuable comments, stimulating suggestions, and encouragement helped me throughout my research and writing. Without his guidance and generous support, this dis- sertation would not have been possible. Finally, I would especially like to thank my family for their constant support and patient love while I was completing the work. V Abstract Rating agencies play a key role in the globalized financial system. Their service is valuable provided it delivers sound and credible assessments of the rela- tive default probability of financial instruments, thus enabling a reduction of information asymmetries between issuers and investors. Nevertheless, rating agencies have faced intense criticism for their role in the recent global financial crisis, a consequence of their overrating of structured finance products. First, this research focuses on explaining and discussing the criticism leveled at the rating agencies in the fallout that followed the financial crisis. Thereafter, it investigates the role rating agencies played in the crisis and provides an un- derstanding of the implemented, proposed, and (currently underway) reforms in regulatory frameworks, and how these affect the functioning of the rating industry. This research addresses two specific research questions. First, how can rating agencies’ perceived or revealed shortcomings be resolved? Second, what proposals or solutions should be advanced or implemented to achieve the desired goals? To answer these questions, the following research provides a brief synopsis of the events that led to the crisis, analyzes the forms of criticism the rating agencies have been subjected to and the primary problems that have become evident. In so doing, the rating agencies’ position is taken into account, along with the role that they and the regulatory authorities play in the price determination process of financial markets is outlined. Following this, the research addresses U.S. regu- latory issues relating to rating agencies and analyses responses to rating agen- cies’ shortcomings from Europe, Canada, India, and Asian Pacific countries. The literature on rating agencies and the effects of regulatory measurements is used to identify answers to the questions raised. The perspectives evident within the literature reviewed are examined and discussed to provide a framework for the empirical investigations integral to this research. In a qualitative empirical study, 21 investment executives of large finan- cial institutions in the United Kingdom, Germany, and Switzerland were in- terviewed with respect to their opinions about rating agencies. Despite the critical comments after the 2007–2008 crisis, this research shows that the ex- isting rating agencies are still considered an important source of credit risk as- sessment. Any tightening of the liability rules for rating agencies should take economic practicability into consideration. As a further recommendation, the rating criteria should be simplified, but not standardized. The findings of this VII research are useful for regulators and scholars engaged in the transformation of the rating agency industry in the present landscape of the global financial marketplace. Keywords: Financial crisis, rating agencies, ratings, rating process, price deter- mination, conflicts of interest, regulation, terminology, methodology, competition, liability VIII
The list of books you might like
