Matthias Efing

Structured Debt Ratings: Evidence on Conflicts of Interest

We test if issuers of asset- and mortgage-backed securities receive rating favors from agencies with which they maintain strong business relationships. Controlling for issuer fixed effects and a large set of credit risk determinants, we show that agencies publish better ratings for those issuers that provide them with more bilateral securitization business. Such rating favors are larger for very complex structured debt deals and for deals issued during the credit boom period. Our analysis is based on a new deal-level rating statistic that accounts for the full distribution of tranche ratings below the AAA cut-off point of a structured debt deal.

How Do Investors and Firms React to an Unexpected Currency Appreciation Shock

The Swiss National Bank surprisingly announced in January 2015 that it would no longer hold the Swiss franc at a fixed exchange rate of 1.2 Swiss francs per Euro, a peg it had defended for more than three years. The Swiss franc appreciated by approximately 15% immediately after the announcement. We exploit the removal of the currency peg to study how investors and firms respond to exogenous foreign currency shocks. We find large negative announcement returns for Swiss firms with significant foreign currency exposure. Affected firms experience a drop in profitability and react by reducing capital expenditures and moving production abroad.