Abstract
Does a regulation based on credit ratings create an incentive to make loans and invest in bonds that have relatively high systematic risk? Using an international sample of almost 4,000 bonds, we test whether credit rating based regulation can create moral hazard. The results of the study show that systematic risk has a significant and positive effect on bonds' credit spread, thus creating an incentive for financial institutions to increase systematic risk.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 22-36 |
| Number of pages | 15 |
| Journal | Bancaria |
| Volume | 70 |
| Issue number | 9 |
| State | Published - Sep 1 2014 |
Keywords
- Asset Pricing; Trading Volume; Bond Interest Rates
- General Financial Markets: Government Policy and Regulation
- Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- Financial Institutions and Services: Government Policy and Regulation