The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant

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9780470018002: The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant

Credit rating agencies play a critical role in capital markets, guiding the asset allocation of institutional investors as private capital moves freely around the world in search of the best trade-off between risk and return. However, they have also been strongly criticised for failing to spot the Asian crisis in the early 1990s, the Enron, WorldCom and Parmalat collapses in the early 2000s and finally for their ratings of subprime-related structured finance instruments and their role in the current financial crisis.


This book is a guide to ratings, the ratings industry and the mechanics and economics of obtaining a rating. It sheds light on the role that the agencies play in the international financial markets. It avoids the sensationalist approach often associated with studies of rating scandals and the financial crisis, and instead provides an objective and critical analysis of the business of ratings. The book will be of practical use to any individual who has to deal with ratings and the ratings industry in their day-to-day job.

Reviews

"Rating agencies fulfil an important role in the capital markets, but given their power, they are frequently the object of criticism.  Some of it is justified but most of it portrays a lack of understanding of their business.  In their book The Rating Agencies and their Credit Ratings, Herwig and Patricia Langohr provide an excellent economic background to the role of rating agencies and also a thorough understanding of their business and the problems they face.  I recommend this book to all those who have an interest in this somewhat arcane but extremely important area."
-Robin Monro-Davies, Former CEO, Fitch Ratings.


"At a time of unprecedented public and political scrutiny of the effectiveness and indeed the basic business model of the Credit Rating industry, and heightened concerns regarding the transparency and accountability of the leading agencies, this book provides a commendably comprehensive overview, and should provide invaluable assistance in the ongoing debate."
-Rupert Atkinson, Managing Director, Head of Credit Advisory Group, Morgan Stanley and member of the SIFMA Rating Agency Task Force


"The Langohrs have provided useful information in a field where one frequently finds only opinions or misconceptions. They supply a firm base from which to understand changes now underway. A well-read copy of this monograph should be close to the desk of every investor, issuer and financial regulator, legislator or commentator."
-John Grout, Policy and Technical Director, The Association of Corporate Treasurers



 

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From the Back Cover:

Credit ratings have become a universal phenomenon throughout the capital markets, relied upon by investors, issuers and regulators alike. Issuers understand the fundamental effect of their rating on financing costs, and investors make buying (and selling) decisions based heavily on these scores. Regulators have incorporated credit ratings into everything from allowable investment alternatives for institutional investors to required capital for global banking firms.

Credit rating agencies and their output are vital in overcoming the information asymmetries of the capital market. The Rating Agencies and their Credit Ratings is a comprehensive explanation of what they are, how they function and why they are relevant, addressing a broad range of issues from the credit rating process and the performance of credit ratings, to the evolution of the credit rating industry and its regulation.

The book is organised into three distinct sections. Part A provides an introduction to credit ratings and their broad and diverse applications, and describes how an issuer obtains and maintains a credit rating. Part B focuses on credit rating analysis, providing analysis of how rating actions and inactions interact with the market. Finally, Part C examines the credit rating industry, explaining where it comes from, what its main characteristics are, how the main players compete, and what results it produces for issuers, investors and shareholders.

Written by experienced Professors Herwig M. Langohr and Patricia T. Langohr, this book provides a unique and exhaustive introduction to credit ratings, developing the reader’s understanding of credit ratings and the credit rating agencies that produce them. It combines breadth of perspective, substantiation of arguments and depth in reflection, provided by the analysis of extensive field interviews, academic research, rating agency data and regulatory hearings and testimony.

From the Inside Flap:

Herwig Langohr was Professor of Finance and Banking at Insead, in Fontainebleau, France, which he joined in 1976, specialising in corporate finance, financial services and corporate governance. He visited numerous academic institutions such as The Wharton School, The Darden School and the Universität Konstanz (Germany). He was holder of the Goldschmidt Chair in Corporate Governance at the Solvay Business School (Brussels). Professor Langohr served on several boards of directors, in particular on the Board of Directors and the Audit Committee of both the financial services group KBC Group N.V. and KBC Insurance N.V. He was Dean MBA and member of the Executive Committee at INSEAD from 1993-1995. He was also a frequent director of Executive Programs and a regular advisor in corporate finance and strategy in the banking sector. He was a contributor to academic journals such as The Journal of Monetary Economics, The Journal of Financial Economics and The Journal of Money, Credit and Banking; to numerous professional journals and newspapers and a regular publisher of case studies. He passed away at the age of 64 on May 28th 2008.

Patricia Langohr is Professor of Economics at the Essec Business School, in Cergy, France, since 2005. Her research specializes in industrial organization, dynamic models of competition and the financial services industry. She teaches microeconomics, industrial organization and business economics. Prior to that, she was a researcher at the Price and Index Number Research division of the Bureau of Labor Statistics in Washington D.C. Professor Langohr obtained her PhD in Managerial Economics and Strategy from the Kellogg School of Management at Northwestern University in December 2003. She has a Diploma in Economics from the Humboldt Universität in Berlin and a Maîtrise in Monetary Economics and Banking from the Université Paris IX Dauphine.

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Book Description John Wiley and Sons Ltd, United Kingdom, 2009. Hardback. Book Condition: New. 1. Auflage. Language: English . Brand New Book. Credit rating agencies play a critical role in capital markets, guiding the asset allocation of institutional investors as private capital moves freely around the world in search of the best trade-off between risk and return. However, they have also been strongly criticised for failing to spot the Asian crisis in the early 1990s, the Enron, WorldCom and Parmalat collapses in the early 2000s and finally for their ratings of subprime-related structured finance instruments and their role in the current financial crisis. This book is a guide to ratings, the ratings industry and the mechanics and economics of obtaining a rating. It sheds light on the role that the agencies play in the international financial markets. It avoids the sensationalist approach often associated with studies of rating scandals and the financial crisis, and instead provides an objective and critical analysis of the business of ratings. The book will be of practical use to any individual who has to deal with ratings and the ratings industry in their day-to-day job. Reviews Rating agencies fulfil an important role in the capital markets, but given their power, they are frequently the object of criticism. Some of it is justified but most of it portrays a lack of understanding of their business. In their book The Rating Agencies and their Credit Ratings, Herwig and Patricia Langohr provide an excellent economic background to the role of rating agencies and also a thorough understanding of their business and the problems they face. I recommend this book to all those who have an interest in this somewhat arcane but extremely important area. -Robin Monro-Davies , Former CEO, Fitch Ratings. At a time of unprecedented public and political scrutiny of the effectiveness and indeed the basic business model of the Credit Rating industry, and heightened concerns regarding the transparency and accountability of the leading agencies, this book provides a commendably comprehensive overview, and should provide invaluable assistance in the ongoing debate. - Rupert Atkinson , Managing Director, Head of Credit Advisory Group, Morgan Stanley and member of the SIFMA Rating Agency Task Force The Langohrs have provided useful information in a field where one frequently finds only opinions or misconceptions. They supply a firm base from which to understand changes now underway. A well-read copy of this monograph should be close to the desk of every investor, issuer and financial regulator, legislator or commentator. - John Grout , Policy and Technical Director, The Association of Corporate Treasurers. Bookseller Inventory # AAH9780470018002

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Book Description John Wiley and Sons Ltd, United Kingdom, 2009. Hardback. Book Condition: New. 1. Auflage. Language: English . Brand New Book. Credit rating agencies play a critical role in capital markets, guiding the asset allocation of institutional investors as private capital moves freely around the world in search of the best trade-off between risk and return. However, they have also been strongly criticised for failing to spot the Asian crisis in the early 1990s, the Enron, WorldCom and Parmalat collapses in the early 2000s and finally for their ratings of subprime-related structured finance instruments and their role in the current financial crisis. This book is a guide to ratings, the ratings industry and the mechanics and economics of obtaining a rating. It sheds light on the role that the agencies play in the international financial markets. It avoids the sensationalist approach often associated with studies of rating scandals and the financial crisis, and instead provides an objective and critical analysis of the business of ratings. The book will be of practical use to any individual who has to deal with ratings and the ratings industry in their day-to-day job. Reviews Rating agencies fulfil an important role in the capital markets, but given their power, they are frequently the object of criticism. Some of it is justified but most of it portrays a lack of understanding of their business. In their book The Rating Agencies and their Credit Ratings, Herwig and Patricia Langohr provide an excellent economic background to the role of rating agencies and also a thorough understanding of their business and the problems they face. I recommend this book to all those who have an interest in this somewhat arcane but extremely important area. -Robin Monro-Davies , Former CEO, Fitch Ratings. At a time of unprecedented public and political scrutiny of the effectiveness and indeed the basic business model of the Credit Rating industry, and heightened concerns regarding the transparency and accountability of the leading agencies, this book provides a commendably comprehensive overview, and should provide invaluable assistance in the ongoing debate. - Rupert Atkinson , Managing Director, Head of Credit Advisory Group, Morgan Stanley and member of the SIFMA Rating Agency Task Force The Langohrs have provided useful information in a field where one frequently finds only opinions or misconceptions. They supply a firm base from which to understand changes now underway. A well-read copy of this monograph should be close to the desk of every investor, issuer and financial regulator, legislator or commentator. - John Grout , Policy and Technical Director, The Association of Corporate Treasurers. Bookseller Inventory # AAH9780470018002

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