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Article
Publication date: 24 February 2022

Earl D. Benson and Barry R. Marks

In April and May of 2010 Moody's recalibrated its municipal bond ratings to a global scale, the system they use for other asset classes and the same scale used by Standard and…

Abstract

Purpose

In April and May of 2010 Moody's recalibrated its municipal bond ratings to a global scale, the system they use for other asset classes and the same scale used by Standard and Poor's (S&P). The authors investigate the impact of Moody's recalibration on true interest cost (TIC) of competitively-sold, uninsured, new bond issues with split bond ratings, by looking at a sample of bond issues before recalibration (1997–2010) and after recalibration (2010–2017).

Design/methodology/approach

Two different hypotheses are tested for each period to estimate whether TIC remains the same when the S&P rating is higher (H1) than Moody's rating or lower (H2) compared to bond issues for which the S&P and Moody's rating are the same. Further, two additional hypotheses are tested. H3 tests whether the impact of having a higher rating from S&P is the same as having a lower rating from S&P. H4 tests whether the impact of having a split rating is the same in the pre- and post-recalibration period.

Findings

Tests suggest that before recalibration a higher S&P rating leads to significantly lower interest costs, but a lower S&P rating does not lead to significantly higher costs. After recalibration, a higher S&P rating leads to significantly lower interest costs; however, a lower S&P rating leads to significantly higher interest costs for the bonds in the sample. The findings also suggest that the rating systems of Moody's and S&P became more similar to each other after recalibration and that the impact on interest cost of a higher S&P rating is reduced after the recalibration.

Originality/value

It appears that a given Moody's rating (which used higher credit standards in the period before recalibration) was more influential than the S&P rating prior to recalibration because investors “ignored” a lower S&P rating during this period. After recalibration, the lower S&P rating was no longer ignored by investors. Therefore, Moody's recalibration seems to have had the intended effect of moving the credit standards of the two rating agencies more into parity. This provides value to investors since they may now assume, unlike the situation in the pre-recalibration period, that similar ratings from the two companies provide similar information about the probability of default and loss that would occur following a default. From the standpoint of regulators, the municipal credit information is easier to understand and is more transparent for investors.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 34 no. 3
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 1 March 2013

Craig L. Johnson

In response to the financial crisis that began in 2007, United States President Barack Obama signed H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, into…

Abstract

In response to the financial crisis that began in 2007, United States President Barack Obama signed H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law on July 21, 2010. “Dodd-Frank” is intended to correct certain problems in financial markets by federally regulating the activities of independent municipal financial advisors and comprehensively expanding regulatory oversight over credit rating agencies. This article reviews the legislation and its financial management rationale, and discusses its actual and potential impact on the future operations of the municipal securities market and its participants.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 2
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 9 November 2015

Mark Adelson and David Jacob

The purpose of the article is to explain the significance of key features of the SEC’s new rules for credit rating agencies. Those rules include three key items: they prohibit the…

Abstract

Purpose

The purpose of the article is to explain the significance of key features of the SEC’s new rules for credit rating agencies. Those rules include three key items: they prohibit the influence of sales or marketing considerations on criteria development; they include guidance that preserves the ability of ratings to serve as relative rather than absolute measures of credit risk; and they require cross-sector consistency of rating symbols. When they were released the significance of the rules was under-appreciated because of other simultaneous regulatory announcements.

Design/methodology/approach

The approach is to consider how effectively the rules address their target issues. In doing so the article explores how the final rules evolved from their original proposed form and from the statutory specifications in the 2010 Dodd-Frank Act.

Findings

The new rules should promote the integrity of credit ratings in the future. They should be effective in reducing the influence of sales and marketing considerations on the development of rating criteria. In addition they should enhance rating integrity through superior cross-sector consistency in the meanings of rating symbols while allowing rating agencies to maintain their traditional emphasis on relative risk.

Originality/value

The authors are not aware of any similar work assessing the selected provisions of the new SEC rules for credit rating agencies.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 6 April 2012

Lukasz Prorokowski

The current paper aims to expand an empirical assessment of correlations of the stock exchange in Poland with other stock markets and foreign economies. The paper attempts to…

Abstract

Purpose

The current paper aims to expand an empirical assessment of correlations of the stock exchange in Poland with other stock markets and foreign economies. The paper attempts to explore international spillover effects during the current financial crisis.

Design/methodology/approach

The study builds upon questionnaires and interviews with practitioners associated with the Polish stock market. The interviewees represent both the advanced and emerging European economies. At this point, analyzing the notions of a cross‐section of experts from different geographical regions increases the value of the findings. The interviewees were asked to comment on a wide range of examples mirroring the reaction of the Warsaw Stock Exchange (WSE) to economic and financial information derived from foreign markets in times of the current financial crisis. An empirical model evaluating the cross‐border implications for the Polish stock market was specified. The model encompassed a wide range of variables and events influencing the performance of the Polish stock market and investors' uncertainty during the nascent financial crisis. Semi‐structured interviews complemented the quantitatively obtained findings and allowed for a gap between theory and practice to be bridged. The qualitative approach injected a dose of realism into the empirical model utilized in the paper and contributed to the value of general findings.

Findings

The current paper reports initial responses of the WIG20 indexed equity prices to 41 economic and financial information sets, originating from systemically significant markets. The influence of these sets is ranked in accordance with their influential powers. The ranking indicates which information events are more likely to be prioritized by investors associated with the WSE and which news are ignored in times of the current financial crisis. Henceforth, the findings outline the crisis‐induced changes in the uncertainty of equity investors and the implications for investment decision making processes. Comparing the responses to economic and financial information sets among different stock markets and industries delivers insight into the profitability of the international portfolio diversification based on either the country or industry specific factors.

Originality/value

The paper focuses on the Polish stock market, which is relatively under‐researched by the existing body of literate. However, Poland's stock market became a leading central European bourse during the current financial crisis. Reporting a number of useful and important implications for the practitioners associated with the WSE constitutes the core value of the paper.

Article
Publication date: 25 August 2021

Yulianti Abbas and Craig L. Johnson

This paper analyzes the impact of increased federal regulatory enforcement from the SEC's Municipalities Continuing Disclosure Cooperation (MCDC) initiative on municipal debt…

Abstract

Purpose

This paper analyzes the impact of increased federal regulatory enforcement from the SEC's Municipalities Continuing Disclosure Cooperation (MCDC) initiative on municipal debt issuers continuing disclosure practices.

Design/methodology/approach

We analyze the changes in continuing disclosure practices by estimating a series of difference-in-differences regressions based on variables representing issuers' changes in regulatory risk after the MCDC. The continuing disclosure data are hand-collected for 827 cities over a seven-year period.

Findings

The empirical findings indicate that increased regulatory enforcement has a significant impact on continuing disclosure compliance. We find increased enforcement has no impact on issuers that already have a higher probability of being monitored by federal regulators. We also find that an increase in continuing disclosure compliance does not automatically increase continuing disclosure timeliness.

Practical implications

The MCDC lacks monetary penalties for noncompliant bond issuers and no direct regulatory consequences exist for untimely disclosure. Our findings suggest that regulatory enforcement should be followed by adequate sanctions to emphasize the credibility of the enforcement threat and the SEC should consider requiring bond issuers to commit to the timely disclosure of significant information in offering documents.

Originality/value

This paper extends prior studies by analyzing regulatory risk in the market, and the ability of regulation to reduce disclosure compliance deficiencies in the municipal market. By focusing on the MCDC, this study is able to disentangle the impact of regulatory enforcement from the changes in accounting regulation.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 34 no. 2
Type: Research Article
ISSN: 1096-3367

Keywords

Abstract

Details

Count Down
Type: Book
ISBN: 978-1-78714-700-3

Book part
Publication date: 2 August 2023

Denise Buiten

Filicide, the killing of a child by a parent, is one of the only crimes committed by women and men in roughly equal numbers. Women's violence against their children, however, more…

Abstract

Filicide, the killing of a child by a parent, is one of the only crimes committed by women and men in roughly equal numbers. Women's violence against their children, however, more profoundly confounds common understandings of the links between gender and family violence, leading to its ambivalent treatment within the media. When men kill their children, they are usually characterised as either monsters or as sad, failed men. When women kill their children, they are usually represented as bad mothers or mad mothers suffering under the burdens of the pathological female body. In both cases, a mental illness/distress lens is common, though how it manifests is inflected by gender. This chapter examines recent Australian news representations of maternal filicide-suicide. Focussing on the mental illness/distress frame in news, it examines the ideological work this frame does in decontextualising and de-gendering maternal filicide, framing women's mental illness/distress in ‘psychocentric’ terms that strip it of political or social significance and subjecting it to an individualised lens that obscures the gendered aetiologies of women's use of violence.

Details

The Emerald International Handbook of Feminist Perspectives on Women’s Acts of Violence
Type: Book
ISBN: 978-1-80382-255-6

Keywords

Article
Publication date: 6 July 2020

Lukasz Prorokowski, Oleg Deev and Hubert Prorokowski

The use of risk proxies in internal models remains a popular modelling solution. However, there is some risk that a proxy may not constitute an adequate representation of the…

Abstract

Purpose

The use of risk proxies in internal models remains a popular modelling solution. However, there is some risk that a proxy may not constitute an adequate representation of the underlying asset in terms of capturing tail risk. Therefore, using empirical examples for the financial collateral haircut model, this paper aims to critically review available statistical tools for measuring the adequacy of capturing tail risk by proxies used in the internal risk models of banks. In doing so, this paper advises on the most appropriate solutions for validating risk proxies.

Design/methodology/approach

This paper reviews statistical tools used to validate if the equity index/fund benchmark are proxies that adequately represent tail risk in the returns on an individual asset (equity/fund). The following statistical tools for comparing return distributions of the proxies and the portfolio items are discussed: the two-sample Kolmogorov–Smirnov test, the spillover test and the Harrell’s C test.

Findings

Upon the empirical review of the available statistical tools, this paper suggests using the two-sample Kolmogorov–Smirnov test to validate the adequacy of capturing tail risk by the assigned proxy and the Harrell’s C test to capture the discriminatory power of the proxy-based collateral haircuts models. This paper also suggests a tool that compares the reactions of risk proxies to tail events to verify possible underestimation of risk in times of significant stress.

Originality/value

The current regulations require banks to prove that the modelled proxies are representative of the real price observations without underestimation of tail risk and asset price volatility. This paper shows how to validate proxy-based financial collateral haircuts models.

Details

The Journal of Risk Finance, vol. 21 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 18 October 2021

Dulani Jayasuriya Daluwathumullagamage

The business model of monoline insurers is to guarantee payments of debt issues in case of defaults by the issuer. Although sparse attention is given to monolines in literature…

Abstract

Purpose

The business model of monoline insurers is to guarantee payments of debt issues in case of defaults by the issuer. Although sparse attention is given to monolines in literature, they play an important role in enabling municipalities and firms in refinancing. This study aims to conduct a systematic review of 181 articles from 1990 to 2020 from 23,130 records and a case study on the key monoline insurers. Key failure, success factors and demand for future monoline insurance are identified. Finally, the study explores monolines’ potential during COVID-19 and develops a framework for monoline governance and regulation.

Design/methodology/approach

The study follows Briner and Denyer and Moher et al. to implement the systematic review. The methodology involves ascertaining the motivation behind the review, and formulating research questions; aggregating relevant prior literature from scientific databases, conducting quality assessment and synthesising the data; and conducting extensive analysis for framework development. Case study methodology foundation phase focuses on understanding the research philosophy. The second phase involves documenting the procedures involved. The final phase involves collecting the relevant quantitative and qualitative material. In addition, collecting empirical data from numerous sources allows triangulation.

Findings

The review results of 181 articles from 1990 to 2020 show that peak article counts occur in 2010 and 2013 (nine academic studies) and in 2008 and 2010 (six industry studies). Over- and under-explored domains happen to be bond pricing (86 academic studies) and bond markets (36 industry studies) and corporate bonds (19 academic studies), respectively. The study highlights failure factors such as adverse selection, premiums mispricings, inadequate capital and regulation, untimely downgrades and governance issues; and identifies success factors such as conservative underwriting, early financing, competitor business acquisitions and obtaining put-back claims. Potential during COVID-19 is discussed and a monoline governance framework is developed.

Research limitations/implications

Search and selection criteria distortions may lead to sample selection bias in systematic reviews. Issue is addressed by using different permutations of the search key words to refine the search criteria. Reference list of collected final sample of articles are perused to identify additional articles. It is difficult to obtain verifiable empirical data on the bond/monoline insurers or their insured products, especially for the structured finance sector. Most of the information available on data stream and firm’s quarterly financial reports for publicly traded monoline/bond insurers and credit rating reports are included to overcome this issue.

Practical implications

Demand for bond/monoline insurance still persists even in the USA. Although borrowing costs are low, obtaining bank loans would be challenging for municipalities and corporates with increased risks. Especially, given worldwide government stimulus on wages, most municipalities would possess reduced budgets for public finance. Monoline insurance can play a key role in financing such projects. Thus, it is important to understand their unique traditional and transformed business model and applicability during and post-COVID-19. Given the near extinction of bond/monoline insurers during the 2008 global financial crisis (GFC), an adequate framework for bond/monoline insurers as developed in this study is key for future business continuity.

Social implications

There is significant interest, especially, from the industry on monolines as identified in our systematic review. Monoline insurance has major effects on taxpayers, government policies and bond investors. They aid in financing public finance projects that have significant societal impact. This study contributes by filling existing gaps in the literature, especially, from a behavioural, ethical and social perspective of the monolines, regulators, other stakeholders and new entrants to the industry during COVID-19. This study links prior finance theories to the impact of bond/monoline insurer’s during the 2008 GFC and their stakeholders involved that has societal implications.

Originality/value

This study can be differentiated from prior research on monoline insurers as follows: The study identifies, gaps, similarities, trends between prior academic and industry literature and develop a bond/monoline governance framework; identifies key failure and success factors during the 2008 GFC crisis to develop the governance framework and identify monolines’ potential during COVID-19; as opposed to most prior literature that only focus on one (Drake and Neal, 2011 analyse MBIA) or two key bond/monoline insurers, this study focuses on five key bond/monoline insurers in detail and all other key insurers as well in the empirical analysis section.

Details

Qualitative Research in Financial Markets, vol. 14 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

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