Financial Constraints and Corporate Credit Ratings : Essays in Corporate Finance and Risk Management

Abstract

The empirical results in the dissertation "Financial Constraints and Corporate Credit Ratings - Essays in Corporate Finance and Risk Management" indicate that credit ratings and even more quantitatively oriented credit risk assessments might be helpful measures of financial constraints. One of the implications caused by the 2008 financial crisis was the increased regulation of capital markets. This process is by far not finalised and firms and investors will face more severe requirements resulting in even stronger financial constraints.

Regulatory authorities plan to reduce the impact of credit ratings offered by external rating agencies on investment decisions by institutional investors throughout the coming years. Alternatively, investors’ decisions shall increasingly rely on internal credit risk assessments. Basically, internal credit risk assessments and external credit ratings mainly differ in that internal assessments are more standardised and model-driven.

These regulatory requirements are likely to make quantitative and standardised models even more important in assessing firms’ credit risk and the supply of external financing will more closely depend on theses types of credit risk assessment. This development will also affect future research on financial constraints. If external financing is more dependent from credit risk assessments based on quantitative models, financing decisions through investors will become more dependent from the outcome of these models.

If researchers are able to rebuild these quantitative models, they will more likely be able to investigate the mechanisms of the supply with external financing and to get a less-biased insight into the nature of financial constraints. Consequently, this will also help policymakers and regulatory authorities to better understand the impact of their regulatory requirements on capital markets and real economy.