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1 – 10 of 118
Article
Publication date: 21 October 2021

Diego Silveira Pacheco de Oliveira and Gabriel Caldas Montes

Given the importance of credit rating agencies’ (CRAs) assessment in affecting international financial markets, it is useful for policymakers and investors to be able to forecast…

Abstract

Purpose

Given the importance of credit rating agencies’ (CRAs) assessment in affecting international financial markets, it is useful for policymakers and investors to be able to forecast it properly. Therefore, this study aims to forecast sovereign risk perception of the main agencies related to Brazilian bonds through the application of different machine learning (ML) techniques and evaluate their predictive accuracy in order to find out which one is best for this task.

Design/methodology/approach

Based on monthly data from January 1996 to November 2018, we perform different forecast analyses using the K-Nearest Neighbors, the Gradient Boosted Random Trees and the Multilayer Perceptron methods.

Findings

The results of this study suggest the Multilayer Perceptron technique is the most reliable one. Its predictive accuracy is relatively high if compared to the other two methods. Its forecast errors are the lowest in both the out-of-sample and in-sample forecasts’ exercises. These results hold if we consider the CRAs classification structure as linear or logarithmic. Moreover, its forecast errors are not statistically associated with periods of changes in CRAs’ opinion of any sort.

Originality/value

To the best of the authors’ knowledge, this study is the first to evaluate the performance of ML methods in the task of predicting sovereign credit news, including not only the sovereign ratings but also the outlook and credit watch status. In addition, the authors investigate whether the forecasts errors are statistically associated with periods of changes in sovereign risk perception.

Details

International Journal of Emerging Markets, vol. 18 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 30 May 2023

Wided Bouaine, Karima Alaya and Chokri Slim

The objective of this paper is to study the impact of political connection and governance on credit rating and whether there is a substitution or complementary relationship…

Abstract

Purpose

The objective of this paper is to study the impact of political connection and governance on credit rating and whether there is a substitution or complementary relationship between them.

Design/methodology/approach

In order to achieve the objective, a succession of eight ordered probit regressions has been carried out. Moderating variables between the political connection and governance characteristics were introduced. The whole population is taken as a sample, i.e., 27 Tunisian companies that are evaluated by FITSH NORTH AFRICA agencies over a period of 10 years (2009–2018).

Findings

The outcomes are mixed. They show that the political connection does not always influence credit rating; the size and board independence always improves credit rating; the duality between the functions affects credit rating; whereas the majorities’ proportion does not influence credit rating; and a substitution between the political connection and the governance characteristics is validated.

Research limitations/implications

Like any other research, our results are factors of our measures and variable choice and depends heavily on the how these variables were conceived. Also, although our number of observations responds to the statistical result generalization requirements, our sample remains relatively narrow with 27 companies only.

Practical implications

In practice, the research will allow investors to have a better vision upon the future of their investments based on whether to develop their governance system or promote political networking. It will also prompt lenders to look beyond ratings and consider factors such as political connections to make a rational judgment on their future placements.

Social implications

This study leads us to find various solutions: the establishment of credit agencies that take into consideration all the data of all the operators taken as a whole (bank, leasing company, and factoring). It encourages the reorganization of the Tunisian banking sector through mergers for example.

Originality/value

This study is a pioneer in the credit rating field in Tunisia, where the source of debt financing is the most used by all enterprises across all sectors. This study extends the literature of political connection effectiveness, independent directors, board size, in improving corporate performance and credit rating.

Details

Journal of Accounting in Emerging Economies, vol. 14 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Open Access
Article
Publication date: 18 March 2024

Sean Gossel and Misheck Mutize

This study investigates (1) whether democratization drives sovereign credit ratings (SCR) changes (the “democratic advantage”) or whether SCR changes affect democratization, (2…

Abstract

Purpose

This study investigates (1) whether democratization drives sovereign credit ratings (SCR) changes (the “democratic advantage”) or whether SCR changes affect democratization, (2) whether the degree of democratization in sub-Saharan African (SSA) countries affects the associations and (3) whether the associations are significantly affected by resource dependence.

Design/methodology/approach

This study investigates the effects of SCR changes on democracy in 22 SSA countries over the period of 2000–2020 VEC Granger causality/block exogeneity Wald tests, and impulse responses and variance decomposition analyses with Cholesky ordering and Monte Carlo standard errors in a panel VECM framework.

Findings

The full sample impulse responses find that a SCR shock has a long-run detrimental effect on the democracy and political rights but only a short-run positive impact on civil liberties. Among the sub-samples, it is found that the extent of natural resource dependence does not affect the magnitude of SCR shocks on democratization mentioned above but it is found that a SCR shock affects long-run democracy in SSA countries that are relatively more democratic but is more likely to drive democratic deepening in less democratic SSA countries. The full sample variance decompositions further finds that the variance of SCR to a political rights shock outweighs the effects of all the macroeconomic factors, whereas in more diversified SSA countries, the variances of SCR are much greater for democracy and political rights shocks, which suggests that democratization and political rights in diversified SSA economies are severely affected by SCR changes. In the case of the high and low democracy sub-samples, it is found that the variance of SCR in the relatively higher democracy sub-sample is greater than in the low democracy sub-sample.

Social implications

These results have three implications for democratization in SSA. First, the effect of a SCR change is not a democratically agnostic and impacts political rights to a greater extent than civil liberties. Second, SCR changes have the potential to spark a negative cycle in SSA countries whereby a downgrade leads to a deterioration in socio-political stability coupled with increased financial economic constraints that in turn drive further downgrades and macroeconomic hardship. Finally, SCR changes are potentially detrimental for democracy in more democratic SSA countries but democratically supportive in less democratic SSA countries. Thus, SSA countries that are relatively politically sophisticated are more exposed to the effects of SCR changes, whereas less politically sophisticated SSA countries can proactively shape their SCRs by undertaking political reforms.

Originality/value

This study is the first to examine the associations between SCR and democracy in SSA. This is critical literature for the Africa’s scholarly work given that the debate on unfair rating actions and claims of subjective rating methods is ongoing.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 24 July 2023

Hardjo Koerniadi

This paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.

Abstract

Purpose

This paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.

Design/methodology/approach

This paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating.

Findings

Inconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting.

Practical implications

The results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies.

Originality/value

The findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.

Details

Review of Accounting and Finance, vol. 22 no. 5
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 28 March 2022

Serdar Simonyan and Sema Bayraktar

This paper examines the relationship between sovereign credit default swaps (CDS) and several macroeconomic factors in an asymmetric setting and distinguishes between short-run…

Abstract

Purpose

This paper examines the relationship between sovereign credit default swaps (CDS) and several macroeconomic factors in an asymmetric setting and distinguishes between short-run and long-run impacts. Country-specific factors (e.g. equity index, international reserves, interest rate and industrial production) and global factors (e.g. US stock volatility [VIX], geopolitical risk and oil price) are the main explanatory variables.

Design/methodology/approach

This analysis uses a nonlinear autoregressive distributed lag approach that enables us to study both long-run and short-run dynamics.

Findings

This study results show that two country-specific factors (equity index and international reserves) and two global factors (VIX and oil price) are the most important factors and affect CDS asymmetrically.

Research limitations/implications

The asymmetric relationships between sovereign CDS and variables in bull and bear markets can also be studied. Consideration of asymmetries in the variance could also be a fruitful step taken for further research.

Practical implications

The findings imply that investors and portfolio managers should design their investment and hedging decisions related to government bonds by taking into account the existence of an asymmetric relationship.

Social implications

Moreover, policymakers can benefit from this asymmetric information in the timing of debt issuance.

Originality/value

This paper examines the relationship between sovereign CDS and several macroeconomic factors in an asymmetric setting and distinguishes between short-run and long-run impacts.

Details

International Journal of Emerging Markets, vol. 18 no. 12
Type: Research Article
ISSN: 1746-8809

Keywords

Expert briefing
Publication date: 7 November 2023

This is the first investment-grade (IG) rating given to Athens by one of the ‘big three’ rating agencies since 2010. The upgrade reflects Greece’s strong post-pandemic economic…

Details

DOI: 10.1108/OXAN-DB283186

ISSN: 2633-304X

Keywords

Geographic
Topical
Article
Publication date: 10 November 2023

Abby Yaqing Zhang and Joseph H. Zhang

Environmental, social and governance (ESG) factors have become increasingly important in investment decisions, leading to a surge in ESG investing and the rise of sustainable…

Abstract

Purpose

Environmental, social and governance (ESG) factors have become increasingly important in investment decisions, leading to a surge in ESG investing and the rise of sustainable investment assets. Nevertheless, challenges in ESG disclosure, such as quantifying unstructured data, lack of guidelines and comparability, rampantly exist. ESG rating agencies play a crucial role in assessing corporate ESG performance, but concerns over their credibility and reliability persist. To address these issues, researchers are increasingly utilizing machine learning (ML) tools to enhance ESG reporting and evaluation. By leveraging ML, accounting practitioners and researchers gain deeper insights into the relationship between ESG practices and financial performance, offering a more data-driven understanding of ESG impacts on business communities.

Design/methodology/approach

The authors review the current research on ESG disclosure and ESG performance disagreement, followed by the review of current ESG research with ML tools in three areas: connecting ML with ESG disclosures, integrating ML with ESG rating disagreement and employing ML with ESG in other settings. By comparing different research's ML applications in ESG research, the authors conclude the positive and negative sides of those research studies.

Findings

The practice of ESG reporting and assurance is on the rise, but still in its technical infancy. ML methods offer advantages over traditional approaches in accounting, efficiently handling large, unstructured data and capturing complex patterns, contributing to their superiority. ML methods excel in prediction accuracy, making them ideal for tasks like fraud detection and financial forecasting. Their adaptability and feature interaction capabilities make them well-suited for addressing diverse and evolving accounting problems, surpassing traditional methods in accuracy and insight.

Originality/value

The authors broadly review the accounting research with the ML method in ESG-related issues. By emphasizing the advantages of ML compared to traditional methods, the authors offer suggestions for future research in ML applications in ESG-related fields.

Details

Asian Review of Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 31 January 2023

Mahmoud Al Homsi, Zulkarnain Muhamad Sori and Shamsher Mohamad

This study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa.

Abstract

Purpose

This study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa.

Design/methodology/approach

A total of 328 Sukuk issuances and 1,110 Sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and Sukuk structures (debt or equity based) were among the important determinants used to explain the different Sukuk credit ratings.

Findings

The results indicate a positive association of Sukuk credit rating with issuing firm’s financial information, governance attributes and the Sukuk structure whilst the macroeconomic factors did not explain the changes in the Sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on Sukuk credit rating for listed firms whilst only firm’s profitability had a positive effect on Sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive Sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive Sukuk credit rating for unlisted firms. Equity-based Sukuk are associated with positive Sukuk credit rating for listed firms while for unlisted firms only the Ijarah Sukuk had a positive Sukuk credit rating.

Research limitations/implications

Data on credit rating is scarce and had to be hand-collected from published reports. Furthermore, issues on the lack of standardisation of Islamic contracts in different geographical areas could constrain on the comparability of findings on determinants of ratings in different jurisdictions.

Practical implications

The findings provide some guide to the rating agencies to objectively assess the issuer’s creditworthiness that could mitigate default risk. Mitigating the default risk will boost investors’ confidence and credibility of credit rating agencies.

Originality/value

This study examines the determinants of Sukuk credit rating of issuing firms in Malaysia, which include not only the listed firms but also the unlisted firms.

Details

Journal of Islamic Accounting and Business Research, vol. 14 no. 8
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 17 July 2023

Dan Daugaard, Jing Jia and Zhongtian Li

This study aims to provide a precise understanding of how corporate sustainability information is used in socially responsible investing (SRI). The study is motivated by the lack…

Abstract

Purpose

This study aims to provide a precise understanding of how corporate sustainability information is used in socially responsible investing (SRI). The study is motivated by the lack of a recognised body of knowledge on this issue. This study, therefore, collates and reviews relevant studies (67 studies) to provide guidance to investors interested in SRI and identify a research agenda for academics desiring to contribute to this area.

Design/methodology/approach

This study conducts a systemic literature review employing recognised key words and searching the Web of Science. HistCite is utilised to ensure important cited studies are not missed from the collection. The review was conducted from two perspectives: (1) sources of sustainability information and (2) how the information is used in SRI.

Findings

The review identifies five major sources of sustainability information, including corporate reports, ESG ratings, industry affiliation, news and private communication with firms. These sources of information play different roles in the cross section of SRI strategies (i.e. negative and positive screening, active ownership and integration). This study provides guidance on how to use this information in SRI and provides recommendations for future research on how analysts interact with the information, how different informational characteristics impact implementation, ways to improve data quality, improvements to analysis methods and where data use needs to be extended into new strategies.

Originality/value

This review contributes to the SRI literature by inventorying studies of an important, yet omitted aspect, namely, sustainability information. This work also enriches the literature on corporate sustainability information by investigating how this information can be used for a specific purpose, namely, SRI. Given the increasing interest in SRI, this review will provide much-needed guidance for a range of practitioners, including investors and regulators.

Article
Publication date: 12 January 2023

Almira Z. Nagimova

Over the past decades, Islamic finance has expanded its presence to many countries including post-Soviet region. The purpose of this paper is to empirically investigate this…

Abstract

Purpose

Over the past decades, Islamic finance has expanded its presence to many countries including post-Soviet region. The purpose of this paper is to empirically investigate this phenomenon in Kazakhstan by adopting qualitative sociological approach. The study also aims to provide vital information and propose recommendations for market participants to contribute to the development of Islamic finance industry in Kazakhstan.

Design/methodology/approach

Primary data were gathered using the qualitative method of in-depth expert interviews with nine Islamic finance professionals representing Islamic banks, ijarah companies, funds and development institutions in Kazakhstan who occupy senior positions (directors, managers, heads of departments, etc.). Furthermore, the primary data of interviews were analyzed and processed using another qualitative method of cognitive mapping, the essence of which is to graphically display the concepts that are most often used by informants.

Findings

The study has shown that first there is a demand for Islamic finance among Kazakh business and population. At the same time, Muslims are not the only consumers of Islamic financial services; therefore, it is affordability rather than religiosity that is an important criterion for choosing Islamic finance. Second, murabaha and ijarah are the two most popular Islamic financial products in Kazakhstan, while equity-based instruments are hardly ever used. Third, Kazakhstan government policy toward Islamic finance received controversial assessments of experts: the state support is declared, but specific actions required by the market participants are not taken. Fourth, key factors that significantly limit the development of the Islamic finance market in Kazakhstan include a shortage of supply, which, in turn, is strongly associated with the second factor – limited funding of local Islamic finance institutions, the absence of insurance (or guaranteeing) system of investment accounts of the local Islamic banks, insufficient economy of scale, lack of convenient service and weak marketing policy of the existing Islamic banks and, finally, lack of educational programs.

Practical implications

The study reveals the potential development of Islamic finance in Kazakhstan which is a rarely studied topic. The findings and recommendations of this study can be used by the regulators, market players and policymakers of Islamic finance industry in Kazakhstan, post-Soviet and other Islamic finance-oriented countries.

Originality/value

This study offers new insights on the future of Islamic finance in Kazakhstan: in long term, the development will be determined by new financial technologies – Islamic FinTech, but in short term – by Islamic windows (currently not allowed by Central Bank) that will help to significantly expand the audience, increase awareness and demand for Islamic finance among local businesses and public. The current study is original, important and up-to-date, as it uses an approach that sources primary data in the form of experts’ point of view instead of relying on literature or document analysis. It is not a mere theoretical study of the literature but an empirical investigation of the problem. Moreover, it seeks to contribute to the Islamic finance literature in the post-Soviet region, particularly from the experts’ perspective.

Details

Journal of Islamic Accounting and Business Research, vol. 14 no. 8
Type: Research Article
ISSN: 1759-0817

Keywords

1 – 10 of 118